On 23 June 2022, the House of Lords’ European Affairs Committee published a report on the UK-EU relationship in financial services.

The  report is based on an inquiry undertaken between February and April 2022. The scope of the inquiry included the impact so far on the UK financial services sector of the UK’s exit from the Single Market; the impact of the absence of a functioning framework for UK-EU regulatory cooperation; the future of cross-border financial services in the absence of equivalence; and the impact of regulatory divergence and agreements with third countries on UK-EU financial services trade.

The report’s findings and conclusions include:

• The overall outlook for the UK financial services sector post-Brexit is positive. Far fewer financial services jobs have moved from the UK to the EU as a result of Brexit than some anticipated. However, it is not yet clear whether the impact of Brexit on the sector has fully played out.
• Regulatory divergence is inevitable and the Committee sees it as an opportunity for the UK to innovate and tailor its regulation to its own interests. However, the Government should weigh the benefits of divergence against the costs of implementing new rules.
• There are concerns that the EU’s increasing emphasis on ‘strategic autonomy’ could lead to barriers to cross-border trade in financial services.
• The UK has inevitably lost influence over the development of future EU financial services rules post-Brexit, but the Committee is concerned that the Government appears unwilling to utilise the influence it still has.
• The absence of EU equivalence decisions for the UK reflects a political, rather than technical, approach on the part of the EU, and it appears that the UK is being held to a higher standard than other countries in this regard.
• The absence of EU equivalence decisions has had less adverse impact than initially feared and that it would, therefore, be unwise for the Government to base its strategy for financial services on a process that it cannot control, and which currently seems unlikely to bear fruit.
• The Memorandum of Understanding (MoU) on regulatory cooperation is being held up because of wider difficulties in the UK-EU relationship. The Committee believes that this MoU would provide a valuable mechanism for strategic dialogue and considers that its earliest possible entry into force should be a priority for the Government. It also calls on the Government to step up its political and diplomatic engagement with the EU regarding financial services.