A Memorandum of Understanding (MoU), signed 27^th June 2023, sets out the principles and procedures for cooperation between the EU and the UK on a range of financial services regulatory matters. The MoU covers:

• Market integrity: This includes cooperation on market abuse, insider dealing, and market manipulation.
• Financial stability: This includes cooperation on macroprudential oversight, cross-border resolution of financial institutions, and crisis management.
• Consumer protection: This includes cooperation on consumer protection in financial services, such as the protection of depositors and investors.
• Data sharing: This includes cooperation on sharing data between the EU and UK regulators, such as data on financial institutions and markets.
• Regulatory equivalence: This includes cooperation on the recognition of each other's regulatory regimes, such as the recognition of each other's financial services firms.
• Regulatory cooperation: This includes cooperation on a range of other regulatory matters, such as the exchange of information and the coordination of supervisory activities.

The expectation is that this will help maintain a level playing field for financial services firms operating in the EU and the UK. This must be a good thing. On the other hand, Brexit, or the UK's withdrawal from the European Union, did indeed lead to many changes in the UK's financial services regulatory regime. However, this new MoU does not reverse all these changes. It will provide a framework for cooperation between the EU and the UK on financial services regulatory matters. This cooperation will help to ensure that the financial services markets in both jurisdictions remain stable and resilient, and that consumers in both jurisdictions are protected from financial harm.

Jeremy Hunt, the UK’s Chancellor of the Exchequer, said the MoU was an "important turning point", while the EU's financial services commissioner, Mairead McGuinness, said the MoU “is one example of the benefits of partnership." This does sound all very nice and probably happened over a cup of tea and some biscuits. But what does it mean for the financial and payments services in the future?

After Brexit, the UK is no longer subject to the EU's financial services regulatory framework, including the recent publication of the draft PSD3 and the European Commission’s proposed Payment Services Regulation (PSR) – not to be confused with the UK’s own PSR which has been established since March 2013, namely the “Payment Systems Regulator” that operates under the Financial Conduct Authority (FCA). After Brexit the UK has the freedom to set its own rules on financial and payment services – i.e., the remit of the FCA and the PSR in collaboration with the HM Treasury and other government departments. However, the UK has also agreed to cooperate with the EU on financial services regulatory matters. This cooperation is set out in the MoU. Some people have argued that the MoU allows the UK to have “its cake and eat it”. They argue that the UK can set its own rules on financial and payment services, such as Open Banking, while still benefiting from the stability and resilience of the EU's financial services market. Whether or not the MoU is a "cake and eat it" deal is a matter of opinion. There are strong arguments to be made on both sides of the debate.

The MoU could lead to an increase in the number of financial services firms operating in both jurisdictions, which could lead to an increase in the demand for jobs in the financial sector. It could help ensure that the financial services markets in both jurisdictions remain stable and resilient. This could lead to a reduction in the risk of job losses in the financial sector, as financial services firms would be less likely to relocate their operations out of the UK if they were confident that the UK's financial services market was stable and resilient.

The ability to passport e-money and Payment Institution licenses from the UK into the EU and vice versa is expected to be one of the many possible provisions that will evolve from the MoU. This means that e-money and payment institutions that are authorized in one jurisdiction will be able to operate in the other jurisdiction without having to obtain a separate license.

The MoU is a positive development in the relationship between the EU and the UK on financial services regulatory matters. However, it is still too early to say what the long-term impact of the MoU will be. The future of the MoU will likely depend on the political relationship between the EU and the UK. If the relationship between the two sides deteriorates, it could lead to the MoU being scrapped or renegotiated. What we are seeing in terms of rapid technological innovation in the financial services sector such as Open Banking, Open Data, Open Finance, and Open Payments will make it easier for financial institutions and fintech companies to operate across borders, and the need for the MoU may be a blessing to support and enable greater innovation or the innovation will leapfrog what the MoU aims to achieve. Moreover, the MoU is a positive development for merchants and consumers. Expect to see reduced costs, increased efficiency, enhanced security, and greater choice of payment providers for merchants and payment methods for consumers. This is only good news for the end-users of financial and payment services.

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The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).