UK and EU Urged to Fix Post-Brexit Financial Frictions

Industry groups, bank and asset manager executives and some regulators are pressing the UK and the EU to agree technical fixes for remaining post-Brexit barriers in financial services rather than waiting for broader political decisions.

They call for clear, time-limited equivalence rules, formal arrangements on central counterparty clearing, data adequacy decisions and stronger supervisory cooperation to reduce legal and operational uncertainty for trading, settlement and cross-border investment.

Market participants say the loss of EU passporting and the limited scope of equivalence decisions have prompted some activity to shift into EU jurisdictions. Firms report friction in derivatives trading where EU rules restrict access to UK clearing houses, and in securities settlement where different operating rules increase costs for cross-border clients.

Banks and fintech firms continue to identify data transfers between the UK and the EU as a practical concern that affects risk management and client servicing. Smaller asset managers and trading firms cite higher compliance costs and fragmented access to trading venues as immediate pressures.

Regulators on both sides have held discussions. Officials from the UK Financial Conduct Authority and the Bank of England have opened talks with the European Securities and Markets Authority and the European Commission on formal supervisory arrangements and temporary tools designed to maintain market stability while longer-term questions are considered.

Industry and some regulators propose memoranda of understanding, supervisory colleges and temporary equivalence findings that would be reviewed regularly. Legal experts point to a mix of bilateral and multilateral tools including short-term equivalence, mutual recognition for specific services and expanded supervisory cooperation as available options.

A senior industry representative warned, “Firms need clarity now to plan where they put capital and people. Practical, time-limited agreements would prevent needless disruption while the broader political conversation continues.”

Several regulatory review cycles and equivalence assessments are scheduled in the coming months and years. Some EU member states continue to press for safeguards against regulatory divergence while UK authorities emphasise regulatory autonomy. Market sources say technical arrangements could be negotiated without resolving those political differences.

Clearing houses in London still process a large share of euro-denominated derivatives. EU rules that limit certain clearing activity have increased the cost of offsetting positions across jurisdictions and reduced netting efficiency for some firms. Partial relocation of post-trade services to EU venues has added operational complexity for cross-border business.

Industry groups and firms ask policymakers to prioritise near-term technical fixes to reduce costs and limit further fragmentation while both sides work on longer-term regulatory issues.