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The U.K. and EU Have Reportedly Reached a Brexit Deal on Financial Services

The U.K. and European Union have reached a preliminary agreement to allow financial services companies to access the bloc after Brexit, The Times of London reported, as the two sides edge toward a broader divorce deal.

The agreement is based on equivalence – the tool that the EU already uses to give non-EU banks access to its market. That’s what the EU has long offered the U.K., and the U.K. has long said it’s not good enough. It falls far short of the status quo – which the U.K. hasn’t even been fighting to maintain.

But The Times says the agreement includes some new features that would make equivalence more palatable:

If the EU decides the U.K.’s rules are no longer equivalent, it would give “significantly longer” than the 30 days set out in current deals. Neither side would unilaterally deny access without arbitration

The pound rose 0.9% on Thursday.

The agreement isn’t binding. That’s because Brexit is being done in two parts. First the divorce deal – the legally binding treaty that sets the terms of separation. A separate document, a political declaration, will set out the intentions of what both sides want the future trade deal to look like. That’s where this financial services agreement will go.

To bridge the gap between exit day and the new trade deal coming into effect, there’s meant to be a two-year transition period. That will only happen if the divorce deal is signed.

The final legal status of U.K. banks in the bloc probably won’t be clear for years. That’s why banks have been active moving staff to the rest of Europe and setting up offices there. An outline agreement probably wouldn’t be enough to make them change their plans. Most banks have prepared for the worst – which means that by the time the final trade deal is signed, the City will have already lost business and jobs.

Still, for Prime Minister Theresa May, an agreement on financial services could make the overall divorce deal easier to sell at home. Brexit Secretary Dominic Raab indicated he expected an overall deal by Nov. 21 in a week-old letter published Oct. 31. Once May gets a deal, it has to go to Parliament, where she doesn’t have a majority and faces opposition on all sides.

It remains to be seen what banks, and U.K. regulators would make of an agreement that leaves the U.K. all but bound to rules that it has no say in making. The Times says the agreement would allow the EU and the U.K. to change or set new financial regulations, but each will have to consult the other beforehand. In practice, it might not look so mutual.

The Bank of England has repeatedly said it does not want to be a “rule-taker” after Brexit.