UK banking stocks tumbled on Tuesday, as alarm grew over the future of financial services in Britain in the wake of its Brexit trade deal.
Leading banks made up four of the five biggest fallers on the FTSE 100 (^FTSE) on the first day of trading since the UK and the EU unveiled their agreement on 24 December.
The declines mark a stark contrast to the fortunes of UK stocks more widely. The FTSE 100 surged 2.7%, as the value of Britain’s biggest listed companies hit a nine-month high. The FTSE 250 (^FTMC) was up 2%.
It comes amid growing jitters over the financial fallout after Britain cuts ties with its biggest trading partner when the Brexit transition period ends on 31 December.
While the UK government has secured a trade deal with the EU, prime minister Boris Johnson has acknowledged it does not do as much as he wanted for Britain’s financial services sector.
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Critics call it a “thin” deal, preventing tariffs or quotas in trade of goods, but creating many other new obstacles to trade in both goods and services.
UK financial firms are set to lose their ‘passporting’ rights from 1 January, which have allowed them to trade freely across the EU.
UK-based companies’ access is reliant on the EU confirming Britain’s financial frameworks are aligned enough with its own rules. Yet time is running out for so-called ‘equivalence’ decisions to be in place in the New Year, when both sides had vowed last year to wrap up the process by mid-2020.
Decisions have been made in only a handful of areas and for time-limited periods, leaving UK firms to comply with every individual EU member state’s requirements separately, according to researchers.
The trade agreement “provides few concrete signs that the 28 outstanding areas of equivalence being considered by the EU will be resolved imminently,” according to the UK in a Changing Europe think tank.
“In the absence of outstanding equivalence decisions, from the 1 January 2021, financial services trade from the UK to the EU will be based on more limited single market access than firms based in other leading financial centres such as New York and Singapore.”
Many companies have set up branches within the EU or moved staff and assets over to their EU arms to avoid the increased barriers. More than 7,500 jobs and at least £1.2tn of assets have been moved from Britain to the EU since the referendum in 2016, according to consultancy EY.
It comes as Ryanair announced a ban on new UK investors and removal of voting rights for existing ones on Tuesday, in the latest sign of the financial fallout from Brexit.
The airline said the measures were needed to comply with EU rules on ownership and control. It said the curbs would remain in place until its board decided its licences to fly in the EU were not at risk.
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