The British Parliament has voted in favour of the 1,255-page deal that Prime Minister Boris Johnson has struck with the European Union in respect of trade between the two parties. The EU has not, as predicted, agreed to issue a blanket designation of 'equivalence' to British financial service businesses that want to do business within its borders.

The issue of 'equivalence' pertains to the EU reckoning a jurisdiction - such as the UK - to have laws and rules that are 'equivalent' to those of one of its directives. The Alternative Investment Fund Managers Directive is a case in point, the second Markets in Financial Instruments Directive another. 'Equivalence' calls for similar results between regimes and not identical laws, although the UK is equipped with many laws that do not vary from EU laws by one syllable.

In a remote televised interview on Christmas Eve, Tom Newton-Dunne of Times Radio asked the premier whether the British service sector, especially the financial services sector, was going to be able to do more trade or less trade. He replied, not entirely accurately: "There's some good language about equivalence for financial services, perhaps not as much as we would have liked but it is nonetheless, you know, going to enable our dynamic City of London to get on and prosper as never before. There's some good stuff about barristers, solicitors, lawyers, being able to practise around the European Union. We will be able to continue to have massive and growing economic interpenetration without the need for this lunar pull of EU law."

He said once again that the deal “perhaps does not go as far as we would like” in respect of financial services in an interview with the Sunday Times three days later.

Unlike foreign subsidiaries, branches that a non-European Union financial institution (such as a British institution) establish directly in an EU country are not, with certain limited exceptions, subject to the EU's prudential regulations. This is now the case with financial institutions from the UK.

Other points about financial services

The parties have made a preliminary agreement to "make their best endeavours" to follow internationally agreed standards in the financial services sector for regulation and supervision, for the fight against money laundering and terrorist financing and for the fight against tax evasion and avoidance. This means doing everything they can to please: the 'group of 20' industrialised nations, of which the UK is luckily a member; the Financial Stability Board; the Basel Committee for Banking Supervision; the International Association of Insurance Supervisors; the International Organisation of Securities Commissions; the Financial Action Task Force; and the Global Forum for Transparency and Exchange of Information for Tax Purposes, the brainchild of the Organisation for Economic Co-operation and Development. As both the UK and EU are already both leaders and close followers of these bodies, nothing new will come of this clause.

"Financial service” means any service of a financial nature offered by a financial service supplier of a party and includes the following activities: insurance and related services; reinsurance and retrocession; insurance intermediation, such as brokerage and agency; banking (including acceptance of deposits and lending); financial leasing; all payment and money transmission services, including credit cards; guarantees and commitments; trading for own account or for account of customers, whether on an exchange or OTC; participation in issues of all kinds of securities; money broking; asset management, such as cash or portfolio management, all forms of collective investment management, pension fund management, custodial, depository and trust services; settlement and clearing services for financial assets; the provision and transfer of financial information; financial data processing and related software; and advice on all of these, including credit reference and analysis.

Article SERVIN.5.42, which deals with financial services new to the territory of a party, provides some succour to financial firms that want to promote new types of financial service unmolested. It states that each party has to permit a financial service supplier of the other party established in its territory to supply any new financial service that it would permit its own financial service suppliers to supply in accordance with its law in like situations, as long as the introduction of the new financial service does not require changes in the law. This does not, however, apply to foreign branches, so it is highly limited.

Regulatory levies

It is interesting to note that the two parties have thought it worth pronouncing on the need to forestall skulduggery over dues that regulated firms pay to their regulators, and indeed to make a separate set of rules for financial services. The UK's Financial Conduct Authority has long referred to the monies that it extracts from its charges as 'fees,' an odd term that implies that it thinks that it is doing those firms some kind of service. The EU has adopted this language itself and in Article SERVIN.5.6 on 'fees,' the agreement states the following.

"For all economic activities other than financial services, each party shall ensure that the authorisation fees charged by its competent authorities are reasonable and transparent and do not in themselves restrict the supply of the relevant service or the pursuit of any other economic activity. Having regard to the cost and administrative burden, each party is encouraged to accept payment of authorisation fees by electronic means.

"With regard to financial services, each party shall ensure that its competent authorities, with respect to authorisation fees that they charge, provide applicants with a schedule of fees or information on how fee amounts are determined, and do not use the fees as a means of avoiding the party’s commitments or obligations."

There are many sections in the agreement that state specifically that they do not apply to financial services. In recent years the EU has grown very fond of insisting on non-EU countries accepting the authority of its regulators and/or the European Court of Justice in matters pertaining to the financial sector and this has been the stumbling-block to further progress here.