Britain and the European Union (EU) have struck a deal on financial services regulation post-Brexit, three months after the UK left the bloc.
Both jurisdictions have been holding discussions about the future of the sector since January this year. It comes as the City lost access to pre-Brexit EU markets on 1 January — the day Great Britain left the single market and customs union.
HM Treasury announced the deal on Friday, and said that the memorandum of understanding (MoU), which still needs to be signed, will create the framework needed for "voluntary regulatory cooperation."
A Treasury department statement said that the UK and EU would create a forum for regulatory talks about financial services. The forum will meet at least twice a year and will be attended by a minister from Britain and his or her equivalent from the EU, as well as other officials.
They will also hold separate discussions on equivalence — the amount of access Brussels grants other nations to its markets. This is based on whether the country's rules are as robust as the EU's.
But, the bloc said an MoU will not automatically lead to market access for British companies after the transition period ended on 31 December 2020.
It is a similar agreement to the existing deal between the EU and the United States and the bloc has declined to grant any long-term direct access to UK firms.
The industry is a huge contributor to the UK economy. In 2019, financial services added £132bn ($182bn) to Britain's economy, this was 6.9% of the country's total economic output. Exports of UK financial services in that same year were worth £60bn and imports £18bn.
Under the rules of the trade deal struck on Christmas Eve last year, the pair had pledged to reach an agreement on financial services by the end of March 2021.
The Treasury has said that "technical discussions have concluded" and this will be formalised once all parties sign off on it.
A Treasury statement said: "Formal steps need to be undertaken on both sides before the MoU can be signed but it is expected that this can be done expeditiously.
"The MoU, once signed, creates the framework for voluntary regulatory cooperation in financial services between the UK and the EU. The MoU will establish the Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues."
Brexit has been causing several issues for many sectors and companies and research from business groups has laid bare the true impact.
A British Chambers of Commerce (BCC) trade research from January 2021 showed that 49% of UK exporters report difficulties in adapting to changes in the trade or movement of goods.
In February, a Confederation of British Industry (CBI) survey, revealed that 68% of manufacturers have experienced delays at borders with 60% also reporting additional customs costs and admin.
While analysis from the Institute of Directors (IoD) from March 2021 showed that since 31 December, almost 20% of directors whose organisations had previously traded with the EU, have stopped.
Similarly, a Make UK survey from March 2021 showed that 74% of UK manufacturers have encountered delays at ports this year, with over half facing increased costs and a third losing revenue.
From 1 July, all firms exporting to the UK will be required to fill out full customs declarations and goods could be subjected to physical checks at new UK customs centres. Great Britain officially left the EU's single market and customs union on 1 January.
WATCH: More than half of UK firms have faced disruption due to Brexit