With the EU-UK Trade and Cooperation Agreement of 24 December 2020 ("Agreement"), the UK and the EU have fundamentally changed market access for financial services firms. As of 1 January 2021, UK financial services firms intending to do business in the EU are no longer allowed to make use of the European Single Market and offer their services cross-border based on the European Passport. Therefore, the implications of the Agreement for financial services are more severe than for trade, coming close to the effects of a no-deal (hard) Brexit. Especially the role of London as the main hub of the EU's financial market will change, as services such as the trading in EU shares are shifting to the continent.
However, even though the immediate effects can be severe, the mid- and long-term implications for the financial industry must not be bleak. Firstly, especially larger financial institutions have reorganized their European operations in anticipation of a hard Brexit well in advance of 31 December 2020, and therefore reduced their dependency on the Single Market greatly. Secondly, as the UK and the EU intend to agree on a Memorandum of Understanding establishing a framework for Financial Services Regulatory Cooperation by 31 March 2021, it seems possible that a significant array of financial services may in the future be offered between the EU and the UK on the basis of equivalence decisions.