UK’s Sunak is a realist in financial deals with EU

As Kenny Rogers sang in “The Gambler”: “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away.”
UK Chancellor of the Exchequer Rishi Sunak has apparently taken that lesson to heart. He called an end to the drawn-out negotiations with the European Union to agree on so-called equivalence, or common regulations on financial services in the post-Brexit landscape. The UK will be forgoing unfettered access to the bloc in order to set its own financial rules.
Equivalence was always a tricky and complex tug-of-war over rules, and whatever was decided would likely be inferior to the prior status of full recognition of each other’s rules. It was obvious early on that persuading Brussels to give up anything meaningful would be futile in the high-stakes game of claiming Brexit wins.
The EU has always bristled at its lack of a truly viable financial industry. So much of the bloc’s myriad components of raising, trading and structuring money and deals have been centered in the City of London, and in recent years that dominance has only increased. Ultimately, that concentration of risk hasn’t been healthy for either side. Perhaps by walking away now, Britain is making it possible to strike a better deal in the future.
Sunak’s latest proposals are about mitigating an obvious loss for the City. But his own work experience at Goldman Sachs Group Inc and several hedge funds has shown him that there is still plenty of ingenuity in London, which is as well-placed as any major financial center to roll with the blows and create new business lines.
But the debate carries on. As the recent opening of JPMorgan Chase & Co’s new Paris office shows, there is plenty of political mileage in attracting the big US investment firms to conduct more of their business within the euro area. The relative gains for the EU so far have been minimal, but the risks for the EU playing hardball with the UK have just risen substantially.
That’s because the battlefield is going to shift away from banks and market infrastructure and toward those who control the money — ie, asset management. Just look at the thorny issue of delegation: Currently, funds raised and based in the euro area can be outsourced and managed in London without too many hurdles. That situation could well change radically and is already creating ructions. The whole point of granting equivalence was to tie the City into the EU rulebook — which partially revolves around the excruciating process of MiFID II — albeit even the bloc is now relaxing constraints.

—Bloomberg