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Sterling rallies after reports of Brexit financial services deal

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  • 01/11/2018
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Sterling rallies after reports of Brexit financial services deal
The UK and European Union have reached a deal on continued access for financial services firms to European markets after Brexit, according to a report in The Times.

 

The report states that a tentative agreement has been reached on all aspects of a future partnership on services, as well as the exchange of data.

It is understood this would be under the EU’s equivalence rules rather than the existing passporting arrangement.

That would mean the UK would have no say on how the EU changed its rules in future and access could only be maintained if the UK’s rules converged with the EU’s.

Although better than a no-deal scenario, equivalence was not seen as a preferred option by the financial services industry as the EU can also withdraw its approval at any time.

However, a government source told the BBC a deal may not yet be as close as thought and added that people “shouldn’t get ahead of themselves”.

 

Follow-up confirmation needed

The report was enough to encourage foreign exchange traders with the pound rising 0.5c against the euro and more than one cent against the US Dollar since the news broke.

Commentators suggested the market reaction indicated how keenly any news of potential breakthroughs in the Brexit process would be received, but also cautioned that it would need to be followed up with official confirmation shortly.

Andy Scott, associate director at financial risk management consultancy JCRA, said: “As the clock ticks down, investors and speculators are treating positive headlines with growing scepticism.

“So this rally might also run out steam if no formal agreement is reached to back up these latest reports.

“The stakes are high, particularly for the UK. The fact that a deal hasn’t been reached yet is reason enough for many to significantly doubt that one can be reached in time.”

 

Equivalence is only option

Petr Ježek, MEP and member of the committee on economic and monetary affairs, noted this was the only realistic deal for the UK.

Speaking on BBC Today programme, Ježek said passporting was not on the table for third countries.

“As a country outside the EU it cannot decide over EU policy, it can negotiate over the shape of any other deals but unfortunately it will be out of the EU,” he said.

“Equivalence is an instrument the EU uses to recognise third countries who provide an equivalent regime in order to avoid duplication in supervision and to allow access to its market.”

Ježek added that he was sorry that the UK had believed it would be allowed greater influence.

“The equivalence decision obeys the current EU rules and you can be either in the EU or single market or out, but for all these categories there are different rules,” he said.

 

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