The UK trade deal with Europe: what it means for financial services

Are you looking for details on the UK's trade deal with Europe? Find out what has been agreed between the two and what this means for financial services

For months, Britain has been under a cloud of uncertainty as the prospect of doing a trade deal with Europe looked more remote than ever. However, it looks as if the EU and the UK have managed to scramble together an agreement at almost the very last minute.

The deal still has to be fully ratified, but faced with the unpalatable alternative of a No Deal, it’s widely expected to be given the thumbs-up.

Stretching to 1246 pages long, there’s a lot of detail to absorb in the draft agreement. However, feedback from various forex trading sites like City Index have confirmed their relief to see progress between the two parties. A No Deal scenario with a reliance on WTO terms would have been disastrous for the markets which have already had to endure a lot of turbulence since the 2016 referendum.

Parliament has to approve the deal, and an emergency session has been called for MPs to cast their vote. But what does the draft agreement include - and what can we expect from 2021 onwards?

When is an agreement not an agreement?

Although everyone is celebrating what looks like a compromise on both sides, the agreement isn't a full trade deal in every way. Instead, it contains several declarations of intent which aren't legally binding.

These declarations are a precursor to a full agreement and pave the way for future deals to be done. They define what will be expected from each party moving forward, but fall short of actually agreeing on specifics.

Financial services

This is one of the areas which is covered by the declaration of intent. The Financial services sector is such a complex area that the two sides have not yet been able to agree on everything, but have instead pledged to try and make a full deal by March 2021.

The hope is that the UK and the EU will be able to agree to equivalence, meaning that they will recognize each other’s rules, allowing frictionless trade cross-border.

Fish

Fishing rights were one of the major sticking points for a deal, with neither side willing to budge. In the end, both made some compromises with a transition period that will last until 2026.

During this interim five-year period, EU fishermen will have their quota slashed by 25%. The EU didn't want to give up any rights, while the UK was asking for a 60% reduction, so this was a hard-fought agreement to reach.

Standards

Another thorny issue was the subject of standards, with the UK determined to be able to set its own guidelines rather than slavishly follow what the EU decides. The deal allows for some mutual recognition of standards, with a commitment from both to try to consult each other before bringing in new changes.

Some areas have been explicitly mentioned separately, such as medicines, where an agreement has been reached, so there is no interruption to the supply chain. The UK and the EU will also share information on health risks, and the latter has granted continued access to its Early Warning and Response System.

Although both sides have compromised sufficiently for the basis of a deal to be hammered out, this is not yet the finished article. More specifics will need to be agreed in many critical areas before the shadow of Brexit can finally be cast aside.

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