With only 52 days left until the conclusion of the Brexit transition period at 11.00 p.m. (BST) on December 31, time is rapidly running out and several key regulatory areas remain uncertain. As political agreement is seemingly still far from assured, the Financial Conduct Authority (FCA) recently moved to make decisions which aim to fill in some of the remaining gaps on the Brexit regulatory puzzle.
What is the latest Political Update?
Despite a significant uptick in the cadence and intensity of the political negotiation between the EU and UK, the mood music on a deal remains downbeat. Although there has been positive progress in some areas (policing and judicial cooperation for example) according to Michel Barnier, lead Brexit negotiator for the EU, there remains “very serious divergences” overall. Two contentious areas where the parties seem far away from consensus are Level Playing Field provisions and fishing rights. As of now, we still do not know for sure whether years of debate, dispute, and Brexit brinksmanship will ultimately result in a deal.
Why is the “Level Playing Field” key to a Brexit Deal?
The Level Playing Field (LPF) is the central tenet of all EU trade-policy and competition rules. It applies equally to EU member states and any country wishing to do business within its single market. The Level Playing Field also played a large role in the initial high-level Political Declaration, which even though it is not legally binding, has guided the Brexit negotiations ever since. The declaration states that given the parties "geographic proximity and economic interdependence," the future relationship must include "robust commitments to ensure a level playing field."
Simply put, LPF are a set of rules and standards that work to prevent businesses in one country gaining a competitive advantage through arbitrage over other countries by reducing their own standards, laws, or regulations or providing governmental subsidies to businesses. Fundamentally, LPF defines how near or far the UK veers from the EU rules. One of the cornerstones of Brexit was to free the UK from the yoke of EU rules and bureaucracy. However, if the UK and EU do not agree to terms such as environmental standards, labor laws and taxation, then there will be no deal. The EU has long maintained that it will not allow UK access to the single market while at the same time the UK obtains an unfair commercial advantage through regulatory arbitrage. That’s why LPF is so crucial.