Market / European Macroeconomics & Governance / brexit / EU-UK relationship

The European Union's post-Brexit reckoning with financial markets

Posted On: May 13, 2020   |   Posted By: Bruegel

In the negotiations between the European Union and the United Kingdom over their future relationship, we see a high probability of a weak contractual outcome, given the dominance of politics over considerations of market efficiency. The EU will thus face a great deal of readjustment and regulatory realignment of its market for financial and other services.
The future relationship will start out with closely aligned regulations which will allow equivalence, and therefore seamless transactions, to continue in many sectors for a number of years. As regulatory autonomy has been one of the main Brexit rationales, we expect divergence to increase after a couple of years. The UK will become a third country for financial service transactions, dependent on temporary equivalence rulings, whereas in the past it could do business under a comprehensive regulatory passport.
London will remain a global financial hub, even as EU companies move operations out of the UK, set up additional licences and distribute activities...

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