The Brexit trade deal lays down the details of the future relationship between the UK and the EU. The main document is the UK-EU Trade and Cooperation Agreement (TCA) which (at the time of writing) is in force provisionally, with ratification to follow .  

The financial services content of the TCA is minimal; there are also 26 pages of Declarations – with a section dedicated to financial services - and texts on other topics, such as nuclear cooperation.

What does the deal say about FS?  The short version

Here’s the sum of it:

First, the deal does not provide for access to the EU single market for UK financial services firms. With no passporting available, UK firms must now comply with the different requirements of individual member states to service EU customers. The majority of UK firms had prepared for this eventuality. (It’s worth a reminder that the UK has implemented a Temporary Permissions Regime to support EU-based firms operating in the UK with a passport but there is no equivalent EU wide scheme for UK firms operating in the EU - although some member states have established temporary arrangements for particular financial services sectors.)

Second, the parties have affirmed a commitment in principle to regulatory cooperation between the UK and EU in a non-binding Joint Declaration. The Joint Declaration confirms an intention to establish a Memorandum of Understanding framework by March 2021.

The longer version

The financial services section of the TCA appears on pages 107-111, with some other provisions of the TCA applying to services generally also potentially of relevance to financial services. 

A few noteworthy details on the FS content as follows:

• The parties will use best endeavours “to ensure that 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, are implemented and applied in their territory” (Article 5.41).
• The “most-favoured nation” clauses that would allow the EU and the UK to claim any more favourable treatment granted by the UK or the EU respectively in their future agreements on trade in services and investment with other third countries expressly do not apply to financial services (Article 2.4(3)(b) and 3.5(2)(b)).
• Access to payment and clearing systems operated by public entities (including central bank clearing mechanisms) will continue for firms based in the other party’s jurisdiction (Article 5.44). UK and EU self-regulatory organisations (defined to include exchanges and clearing houses) must admit the other party’s firms on a non-discriminatory and “most favoured nation” basis (Article 5.43).
• UK firms may establish branches in the EU but “may be required to satisfy a number of specific … requirements” (Annex 1, para 14) – in other words, local EU rules will apply.
• Financial services providers in both jurisdictions will be permitted to supply in the other’s territory any new (i.e. as yet unidentified) forms of financial service which local firms are in future permitted to provide, and to do so without additional local restrictions applying, provided that the supply of any such new form of financial services relies on existing local legal and regulatory frameworks to which all such firms are already subject. This will not however extend to activities carried on through branches (Article 5.42).
• There’s a prudential carve-out which allows the UK and EU each to take any measure it deems necessary for consumer and investor protection or the integrity of its financial system (Article 5.39).
• The more general requirement for the EU and UK to review trade in services and investment relations with a view to introducing improvements in the future expressly does not apply to financial services (Article 1.4 (3)).
• Personal data may continue to flow from the EU to the UK as it does now thanks to an interim bridging solution (which can be extended) in Article FINPROV.10A.
• There are provisions to allow for the temporary movement of persons for business purposes, facilitating intra-corporate secondments and temporary transfers between jurisdictions. Short-term business visitors from the UK may enter the EU without a visa for 90 days in any six-month period but there are restrictions on the sorts of activities they can perform. UK qualified workers who wish to work in the EU will have to meet the qualification requirements of each individual member state.

Much has been made of the accompanying commitment in the Declaration for the EU and UK to cooperate on financial services matters. We reproduce the text here for convenience:

1. The Union and United Kingdom agree to establish structured regulatory cooperation on financial services, with the aim of establishing a durable and stable relationship between autonomous jurisdictions. Based on a shared commitment to preserve financial stability, market integrity, and the protection of investors and consumers, these arrangements will allow for:

- bilateral exchanges of views and analysis relating to regulatory initiatives and other issues of interest;

- transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions; and

- enhanced cooperation and coordination including in international bodies as appropriate.

2. Both Parties will, by March 2021, agree a Memorandum of Understanding establishing the framework for this cooperation. The Parties will discuss, inter alia, how to move forward on both sides with equivalence determinations between the Union and United Kingdom, without prejudice to the unilateral and autonomous decision-making process of each side.

This rings bells of the parties’ earlier commitment (in the 2019 Political Declaration) to conclude equivalence determinations by mid-2020 - an ambition that was not met - but it does at least present the possibility of progress and avoids, for now, the prospect of mutual non-cooperation and retaliatory measures. The Commission webpage notes that: “the TCA does not cover any decisions relating to equivalences for financial services…. There are unilateral decision of the EU and are not subject to negotiation.” Moreover, perhaps somewhat ominously, the accompanying Q&A comments: “a series of further clarifications will be needed, in particular regarding how the UK will diverge from EU frameworks after 31 December, how it will use its supervisory discretion regarding EU firms and how the UK's temporary regimes will affect EU firms. For these reasons, the Commission cannot finalise its assessment of the UK's equivalence in the 28 areas and therefore will not take decisions at this point in time. The assessments will continue. The Commission has taken note of the UK's equivalence decisions announced in November, adopted in the UK's interest. Similarly, the EU will consider equivalence when they are in the EU's interest.”

The shortcomings of the existing patchwork of equivalence regimes across the major financial services sectors – as an inadequate replacement for passporting - have been widely discussed. There is also a separate question of what ‘equivalence’ refers to in the Declaration and whether the concept might be extended or enhanced. The general assumption so far is that it refers only to equivalence under existing EU legislation, for no other reason that the EU appears to have little incentive to agree to an extension.

Essentially, therefore, the long-awaited deal sets the stage for future rounds of negotiations and discussions between the UK and EU, but there is perhaps some relief that we’ve avoided a worst case scenario of regulatory non-cooperation.