Brexit Plan Could Alienate UK FIs

The United Kingdom and the European Union have come to an agreement that will give London’s financial center basic access to the EU’s markets after Brexit.

According to Reuters, the deal will be based on the EU’s existing system of financial market access known as equivalence, which is granted to many countries. However, the U.K. had been looking for major concessions in its deal with the bloc, such as offering broader access and safeguards on withdrawing access. Neither was mentioned in the draft deal.

“It is appalling,” said Graham Bishop, a former banker and consultant who has advised EU institutions on financial services. The draft text “is particularly vague but emphasizes the EU’s ability to take decisions in its own interests … This is code for the UK being a pure rule taker.”

Many top bankers have been worried that Britain’s departure from the European Union, due on March 29, will undermine London’s financial standing. Right now, U.K. banks and insurers have unrestricted access to customers across the bloc in all financial activities. With this new deal, however, the U.K. will be restricted to a more limited range of business, much like the access given to major U.S. and European companies. In addition, equivalence excludes activities including commercial bank lending.

But Rachel Kent, a lawyer at Hogan Lovells who has advised companies on future trading relations with the EU, said there could be improved equivalence in the future.

“I don’t see that any doors have been closed,” she said. “It is probably as much as we could hope for at this stage.”

And the U.K. striking a deal with the EU is better than the alternative: credit ratings agency Standard & Poor’s warned last month that Great Britain could be headed toward a long recession if it couldn’t strike a Brexit deal. As a result, S&P has given the U.K. an “AA” credit rating, a full step below its top “AAA” rating.