To what extent are financial services in this last Brexit deal (trade agreement)?

Question

I've read two somewhat conflicting accounts from the BBC on this. On one hand:

[Boris Johnson] acknowledged he had been forced to give ground on his demands on fishing.

"The EU began with I think wanting a transition period of 14 years, we wanted three years, we've ended up at five years," he said.

And he said the UK had not got all it wanted on financial services, a vital part of the UK economy, but he insisted the deal was "nonetheless going to enable our dynamic City of London to get on and prosper as never before".

So something was agreed on financial services, but what? On the other hand, BBC's editor for Europe says:

Remember, the UK is a service-based economy, yet this agreement hardly deals with services at all.

UK financial services must wait, possibly for months yet, for the EU to decide unilaterally what access they can have to the single market.

So that means nothing was actually in this deal regarding financial services, it's all left to the EU to decide later?

Answer 1

It appears that the deal contains broad declarations in ensuring "continued market access" for financial services. There is, however, no agreement on equivalence rights. The summary document from the UK noted that further discussions on "specific equivalence determinations" are needed.

The Wall Street Journal noted that "[i]t isn’t entirely clear how [the agreement] will affect financial services".

Both sides had agreed during the negotiations to discuss financial services separately. The U.K. government said in a document published Thursday that the agreement includes provisions to support trade in services, including financial services and legal services.

[ ... ]

The sides will continue discussing how to move forward on granting equivalence and pledged to codify a framework for regulatory cooperation.

Indeed, some are calling for more discussions to be done promptly in the area of financial services. From the same WSJ article:

Bob Wigley, chair of UK Finance, the trade association for financial services firms, said there was more work to be done.

“It will be important to build on the foundations of this trade deal by strengthening arrangements for future trade in financial services,” he said in a statement. “This can be achieved by building on the longstanding regulatory dialogue and supervisory cooperation between UK and EU authorities and reaching agreements on all appropriate equivalence determinations as soon as possible.”

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The text of the agreement has yet to be released. From the summaries released by both sides, I have identified the relevant portions relating to financial services and quoted them below.

From the UK:

Section 6 - Financial Services

57. The Agreement includes provisions on cross-border trade in financial services and investment that will secure continued market access. The Agreement provides protections that will ensure that our regulatory and supervisory authorities will be able to act to ensure financial stability, market integrity and protect investors and consumers.

58. The Parties have agreed a joint declaration setting out their commitment to these shared objectives and have agreed to enhanced cooperation as well as information sharing and bilateral dialogue in order to establish a durable and stable relationship.

59. The declaration reaffirms the integrity of our respective, autonomous equivalence frameworks. The Parties will discuss how we move forward on specific equivalence determinations. The Parties will codify the framework for regulatory cooperation in a Memorandum of Understanding.

– Summary Explainer, page 14

From the EU:

UK service suppliers no longer benefit from the ‘country-of-origin’ approach or ‘passporting’ concept (e.g. for financial services), which enable automatic access to the entire EU Single Market

– A new relationship, with big changes - Overview of consequences and benefits

In addition, the Agreement does not cover any decisions relating to equivalences for financial services.

– A new relationship, with big changes - Brochure

Potential EU unilateral measures

Not subject to negotiation:

• Adequacy decision on data protection
• UK third-country SPS listing
• Equivalences in financial services

– A new relationship, with big changes - Brochure

(emphasis mine)

Similarly, UK service suppliers in the EU will have to comply with host-country rules in each Member State, and will no longer benefit from the country-of-origin principle, mutual recognition (e.g. of professional qualifications), or passporting rights for financial services. UK service suppliers and investors can also establish themselves in the EU in order to offer services across the Single Market.

– A new relationship, with big changes - Brochure

Answer 2

As I was reading more on this, Reuters pointed out that

Brussels has only granted financial market access, known as “equivalence”, for two financial activities from Jan. 1, when Britain will have left the EU’s single market.

The Bank of England has said there could be disruption in markets if no further access is allowed.

Just minutes after Britain and the EU hailed their agreement on trade, the bloc’s executive said it wanted a “series of further clarifications” on how Britain will diverge from EU rules after Dec. 31.

“For these reasons, the Commission cannot finalise its assessment of the UK’s equivalence in the 28 areas (under discussion) and thus will not take decisions at this point in time. The assessments will therefore continue,” the official said.

It's unclear to me exactly what those activities are (the article doesn't specify) or how much business the 2 of 28 areas that there is equivalence agreement on are worth in financial terms. Anyway, what is said in there that a MoU is probably going be agreed on this in March:

The two sides will also aim to agree by March 2021 a memorandum of understanding on regulatory cooperation in financial services. Countries such as Canada and the United States already have such cooperation.

Answer 3

Although the trade deal itself does not specifically mention access for Financial Services as there was no time during the Brexit negotiations for this, it does allow for an 'Equivalence' deal to be negotiated at a later date. Equivalence is the mechanism offered to any partner with non-European type deals with the EU (e.g. Canada, Japan, Singapore). In theory, UK could apply for Equivalence in all 40 sectors, thereby preserving almost-full access, but unlike passporting which allows for unconditional fixed-term access, this 'full' access via Equivalence is subject to one strict condition: That the partner in question does not stray too far below EU rules, else the EU can uni-laterally terminate access with 1 months notice.

Obviously, for some types of activities (e.g. Retail banking), this type of condition is considered as being too much of a risk, and is therefore de-facto excluded under Equivalence.

But the UK has clearly stated its intention to go their own separate ways in some sectors as it believes that effectively out-sourcing some decisions on Domestic Financial activities to the EU is too risky. So in response to this the EU have delayed their Equivalence decision to find out exactly where the UK chooses to diverge, and by what extent. Currently a temporary Equivalence decision up to 2025 has been awarded for Clearing. It remains to be seen what access (if any) is given after this.