REGULATORY COOPERATION BETWEEN THE EU AND THE UK IN FINANCIAL SERVICES

In European economic circles, the relationship between the European Union and the United Kingdom in financial regulation has garnered increasing attention since the official end of the Brexit transition period. In a world where financial market stability plays a crucial role in economic prosperity, the EU and the UK—former partners in a single market—now find themselves at a crossroads, navigating new forms of cooperation. This evolving dynamic is crystallized in a Memorandum of Understanding (MoU) concluded in May 2023, designed to establish a voluntary framework for dialogue on financial supervision and regulation, going beyond the basic provisions of the Trade and Cooperation Agreement (TCA). However, this landscape remains fluid: the future of this cooperation depends as much on economic developments as on political orientations, and the steps taken in successive meetings indicate that both parties are striving to balance their interests.

SUCCESSIVE MEETINGS AND KEY ISSUES

Since the adoption of the Memorandum of Understanding, three meetings have taken place, reaffirming the European Union and the United Kingdom’s commitment to maintaining a structured dialogue. This biannual dialogue is focused on four key areas: monitoring macroeconomic trends, banking stability and anti-money laundering, capital markets development, and the digital transformation of financial services, alongside the critical issue of sustainable finance.

• The first meeting in October 2023 underscored the importance of the dialogue itself: discussions centered on the implementation of sanctions against Russia, the modernization of the UK’s regulatory framework, and the need to address potential vulnerabilities within non-bank financial institutions. Participants emphasized the urgency of finalizing reforms spearheaded by the Financial Stability Board (FSB) to enhance global financial stability, while also supporting the work of the Basel Committee on Banking Supervision.
• The second meeting in May 2024 expanded the scope of discussions, focusing on Basel III implementation, the revision of the EU’s crisis management framework, and efforts to green the financial sector. Both parties stressed the need for regulatory convergence to avoid redundancies and emphasized interoperability, particularly in sustainability reporting standards and market infrastructure modernization, such as transitioning to T+1 settlement cycles.
• The third meeting in February 2025 shifted attention to the increasing digitization of financial systems, particularly the role of artificial intelligence in financial services. Discussions also covered crypto-asset regulation, with both the EU and the UK agreeing on the importance of implementing the Financial Stability Board’s recommendations to secure this still-volatile sector. Additionally, both parties addressed the technical and operational challenges of migrating to a T+1 settlement architecture, with a tentative implementation target of October 2027.

CURRENT FRAMEWORK: THE ROLE OF THE TCA AND EQUIVALENCE MEASURES

Since January 1, 2021, the UK has been classified as a third country by the EU, requiring its financial institutions to rely on temporary equivalence decisions to access the single market. To date, the EU has granted formal equivalence only to UK-based central counterparties (CCPs), while other third countries such as the United States, Canada, and Australia enjoy broader recognition in multiple areas.

The TCA (Trade and Cooperation Agreement) itself provides only a limited foundation for financial services, mainly offering general non-discrimination provisions and commitments to uphold international standards. This limitation led both parties to adopt a Joint Declaration on Regulatory Cooperation in 2023, aiming to structure a more robust dialogue beyond the TCA’s minimal obligations.

TOWARD CONVERGENCE OR A "RESET"?

Observers note a potential "reset" in EU–UK relations, with an uncertain outcome. This shift could impact several key areas:

• Market access for financial institutions: The EU may decide whether to grant additional sectoral equivalence measures, affecting firms' ability to operate across borders.
• Talent mobility and workforce transfers: A critical issue for financial groups with operations on both sides of the Channel.
• Regulatory cooperation mechanisms: The Joint EU-UK Financial Regulatory Forum could either be consolidated or weakened, depending on political and economic developments.

So far, the Bank of England, the Financial Conduct Authority (FCA), the European Central Bank (ECB), and other supervisory bodies have actively participated in regular dialogues. This engagement suggests that both blocs are striving to adapt to global financial challenges, whether related to macroeconomic stability, technological evolution, or sustainable finance.

CONCLUSION

Regulatory cooperation in financial services between the European Union and the United Kingdom reflects a delicate balance between continuity and divergence. Without the integration benefits once offered by the single market, UK financial players closely monitor potential regulatory adjustments, while the EU remains focused on safeguarding financial stability and protecting the integrity of its internal market.

The three successive meetings have demonstrated a shared willingness to advance discussions on key issues such as green finance, digital transformation, anti-money laundering efforts, and banking resilience. Despite uncertainties surrounding the "reset" announced by London, this bilateral dialogue mechanism, though voluntary and lacking legal force, remains a pragmatic channel for discussing and preventing regulatory conflicts.

As both sides face growing global risks, continued EU–UK engagement appears essential in ensuring financial sector stability and adaptability. While full regulatory alignment is unlikely, partial convergence and ongoing coordination signal a strategic approach to managing financial interdependence in a rapidly evolving global landscape.

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