Data flow alignment under PM's Brexit deal
Written by Hannah McGrath
Financial services providers can expect free movement of capital and payments along with alignment in data flows after Brexit under an outline deal put forward by Theresa May, which has prompted a cautiously optimistic response from The City.
The details of plans for financial services set out in the government’s proposed Brexit withdrawal agreement last night include a ‘political declaration’ highlighting the importance of the financial sector to the UK economy and outlines close alignment and equivalence arrangements when it comes to regulation and data flows between the UK and EU after Brexit.
The political declaration was published alongside the prime minister’s 585 page draft Brexit withdrawal agreement, which has drawn an angry backlash from Brexit-supporting members of her own party and prompted the resignation of four ministers so far this morning, including Brexit secretary Dominic Raab.
The document sets out areas of “close and structured co-operation” on the future relationship between the UK and EU after March 2019 covering key economic sectors such as a goods, trade and financial services.
It states that under the outline agreement there would be: “Provisions to enable free movement of capital and payments related to transactions liberalised under the economic partnership, subject to relevant exceptions.”
The declaration also includes plans to ease cross-border electronic payments and data transfer, in order to maintain digital trade flows whilst opening up the prospect of the UK drawing up its own data protection regime.
The document, published after Theresa May secured fragile backing from her cabinet last night, commits to: “Provisions to facilitate electronic commerce and cross-border data flows, address unjustified barriers to trade by electronic means, and ensure an open, secure and trustworthy online environment, with a bilateral dialogue and joint work in multilateral and multistakeholder forums, while not affecting the parties’ data protection rules.”
The proposed political agreement with the EU would also commit the UK to a “high level of personal data protection” which includes the UK being subject to the European Commission’s standards assessment before the end of 2020.
“In the same timeframe, the United Kingdom will take steps to ensure comparable facilitation of personal data flows to the Union… appropriate cooperation between regulators,” the document stated.
Further provisions included commitments to minimise disruption to service providers, close regulatory alignment and assurances that Brexit does will lead to discrimination against investors.
On the issue of regulatory alignment and supervision of financial services - a key area of concern for The City’s financial institutions - the political declaration would commit the UK to: “Close and structured cooperation on regulatory and supervisory matters, grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability, recognising this is in the parties’ mutual interest.”
The document underlines the importance of “preserving financial stability, market integrity and investor protections between the EU and UK”, while respecting both sides’ regulatory autonomy and ability to take so-called ‘equivalence decisions’ for themselves.
“Commencement of equivalence assessments by both parties as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020,” the document added, pointing to a clear desire to ensure a smooth transition to equivalence arrangements for financial services, including clearing and investing services after Brexit.
Last night EU council president Donald Tusk said EU leaders would meet to "finalise and formalise" the prime minister's proposed withdrawal deal at a special meeting on 25 November.
However, his insistence the meeting would go ahead "unless anything extraordinary happens" hinted at nervousness in Brussels over the stability of May's government following an angry backlash to the deal.
He added that Brexit was a "lose-lose situation" and that negotiations over the terms of the divorce were only "about damage control."
The draft agreements have drawn a cautiously optimistic response from the financial services industry. UK Finance called it an “important step forward” on the UK’s journey towards Brexit, and warned of the need to support the prime minister’s deal in order to avoid a “damaging and disorderly” no deal exit.
Stephen Jones, chief executive of UK Finance, said: “The country’s economic future depends on politicians showing pragmatism over ideology and having an honest debate about the true cost of leaving the EU without a deal in place.
“The finance industry will continue planning to minimise any disruption from a ‘no deal’ scenario, until the agreement has been ratified on both sides of the channel,” he continued.
“During this time it is vital that both the EU and UK continue to work together to address potentially critical cliff-edge issues such as cross-border data flows and contractual continuity, to provide customers and firms with sufficient legal and regulatory certainty.”