The EU-UK leaders’ summit and financial services

The bilateral summit on Monday 19 May between the UK Prime Minister and the Presidents of the European Commission and European Council was the first formal UK EU summit since the UK left the EU in March 2020. It marked a significant "reset" in the relationship following the new Labour government coming to power last July and sets out a new “strategic partnership”.

The focus of the summit was clear: deeper bilateral cooperation on security and defence given the urgency of the situation in Ukraine. The subtext of closer UK EU geopolitical cooperation more broadly as a reaction to the US Trump administration was also pretty clear. Witness the commitments in the joint declaration to the international rule of law, to global standards on free trade, and to defending democracy as well as to defending Ukraine.

On deepening economic cooperation and increasing bilateral trade, the summit set out a number of areas for future cooperation and alignment in the so called “areas of common understanding”: food standards, energy markets, sharing data in the fight against crime, and improved mobility for professionals and young people. The EU and the UK continue to be strong economic and strategic partners. Therefore, discussing these different areas of deeper economic alignment for the first time since the UK’s departure from the EU, even though they will take a lot of effort and time to deliver, is in our view a very positive development.

Defence pact

The signing of a new defence pact is important and welcome. The UK is a major European military power and committed under NATO to the defence of Europe. Closer cooperation is hugely important, especially for central and eastern EU member states, as well as Ukraine, a candidate EU member state. The pact should now lead to negotiations to unlock joint military procurement and access to the EU SAFE financing mechanism. We in the City strongly support joint private public co-financing of defence. London can provide an important source of private finance for EU defence companies, particularly by deploying bank lending and capital market finance to the innovative defence tech sector. It is therefore vital that any barriers to cross border defence financing, such as the direct constraints on cross border bank lending into the EU, should be reviewed.

Energy markets

The summit also agreed some important joint initiatives on energy markets, notably moves to link electricity markets and to link emissions trading systems (ETS) that allow for carbon pricing and trading. This is important for allowing a joint approach to the Carbon Border Adjustment Mechanism planned by the EU. We welcome these moves and would urge both sides to look also into how to encourage the growth of voluntary carbon offset markets together across Europe. 

Mobility

The City also supports measured moves to facilitate access to talent between the EU and UK. We welcome efforts to further the mutual recognition of professional qualifications (MRPQs) in areas such as law and audit. We also endorse improvements to intra company mobility, with many EU financial and professional services firms keen to be able to deploy staff to work in the deep global markets in London. And we also support the summit's conclusions to look at a youth experience scheme. We already benefit from the talent provided in the City from such agreements with other partners.

Financial services 

There was as expected nothing specific in the areas of common understanding on improved bilateral access in financial services. But we welcome the deepening bilateral financial services regulatory dialogue set up under the TCA that has met three times already. We are convinced that this dialogue can not only share best practice - such as on how to deepen citizens' access to pension provision, on prudential regulation, on green finance and innovation - but also commit both sides to removing frictions to cross border services within the constraints of the TCA. Looking again at barriers to investment in defence is a good example. We also welcome UK and EU support for global standards in financial regulation. For out part, we continue to work with our EU industry counterparts to encourage an ever-deeper dialogue 

 Next steps

The two sides have agreed to meet annually, with more regular meetings on foreign and security policy and the Foreign Secretary attending EU ministers’ meetings. We would also welcome more regular meetings on economic and financial policy, as we saw when the Chancellor attended an EU finance ministers’ meeting. Much of the “areas of common understanding” now need the details to be agreed in follow up negotiations. Some areas, like ETS, are urgent. So too in our view is the need to look at defence investment. We would also encourage both sides to take an ambitious approach to the wider review of the TCA .

As Bank of England Governor Andrew Bailey stated on 29 May in Dublin, the benefits of open financial markets go both ways and the scale of investment need in the EU and the UK requires access to global capital. Stronger cooperation on financial services is therefore urgently needed to help to strengthen both our economies and master the challenges ahead of us.

Read the press release: City of London Corporation responds to the UK-EU leaders summit

About the author

Nick Collier joined the City of London Corporation as Managing Director of the Brussels office in March 2019. He was previously Global Head of Government Relations at Refinitiv (Thomson Reuters). Before that he worked at a range of organisations in the financial services sector, including Morgan Stanley and the Bank of England and, until recently, served as Chair of TheCityUK’s Public Affairs Group as well as Deputy Chair of the International Regulatory Strategy Group. Nick is chair of diplomatic engagement at the International Business and Diplomatic Exchange. He holds a MSC in Economics and Finance from the London School of Economics and a BA from Oxford.