Brexit and the Future UK–EU Relationship

This chapter uses the domestic political economy framework to consider the implications of Brexit for UK financial regulation. It outlines the likely future UK–EU relationship by analysing the preferences, role, and influence of key domestic groups on Brexit, and by assessing the EU’s framework for managing relations with third countries. We argue that elected officials pursued a ‘hard’ Brexit position in response to parliamentary constraints and pressure from financial regulators to avoid becoming rule-takers. The City of London authorities pushed strongly for a bespoke deal based on mutual recognition, although this masked significant intra-industry divisions. The EU’s insistence that the future relationship be based on the existing third-country regime reflected a desire to defend the single market, but also Franco-German incentives to compete for post-Brexit business. However, the coverage of third-country equivalence rules in finance, and the inclusion of financial services in trade agreements, remains limited.