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Traders grow anxious over market access ahead of Brexit deadline

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Traders are ramping up warnings of disruption in financial markets from January without clear decisions on how the UK and EU will co-operate after the Brexit transition period ends.

Some derivatives trading may need to shift to the US unless the two sides can come to an agreement over so-called equivalence that would allow mutual recognition of regulatory standards, industry bodies say.

Decisions on the matter were due at the end of June, but the EU has withheld guidance without more clarity from the UK on how far it intends to diverge from EU rules. With just six weeks remaining before the cut-off point, anxiety is rising.

“There are still some glaring gaps that haven’t been addressed by either the UK or EU, including equivalence for trading venues,” said Scott O’Malia, chief executive of Isda, an industry association for the derivatives market. 

Without equivalence, British and EU companies may have to trade some derivatives in the US, he added. “This will lead to fragmentation and a lack of efficiency for no apparent benefit . . . We need certainty as soon as possible.”

The EU and UK have agreed that the future relationship for financial services should be settled through each side assessing whether the other qualifies for access rights. That requires individual decisions on nearly 40 market activities, including audit standards, capital requirements and access to exchanges and clearing houses. The discussion is separate from trade talks, which are still under negotiation.

The UK this month announced it would press ahead with some equivalence determinations, allowing UK-based banks to use EU financial benchmarks, clearing houses and credit-rating agencies, and exempting them from a jump in capital they required to absorb losses linked to EU exposures. Brussels, however, has not reciprocated.

EU diplomats say the union’s stance reflects a mixture of negotiating tactics connected to the two sides’ future-relationship talks, a political agenda to become more independent from the City after Brexit, and concerns about handing rights to a country seeking to break away from EU rules.

A lack of equivalence decisions would not shut UK banks, investors and trading venues out of the EU market, but it would open up gaps in regulation as both sides hammer out agreements with counterparts on a country-by-country basis.

“The uncertainty is not doing anyone any good,” said Mark Spanbroek, chairman of FIA Epta, an industry group representing about 30 of Europe’s proprietary traders. “If you don’t solve this you are running into bilateral agreements, where some [national] regulators interpret the rules differently to others” in a bid to attract business, he added. 

Among other elements, European regulators are racing to finalise a workaround that will stop London branches of EU banks having to route derivatives trades through New York — operations that risk being caught between overlapping EU and UK rules.

The European Commission has said its equivalence assessments of the UK must be “forward looking” and take into account any British plans to diverge from EU rules. The Brussels-based institution has said that it needs more information despite the UK government providing 2,500 pages of answers to EU questionnaires earlier this year. 

However, some in the sector have argued that the EU should have been more forthcoming with equivalence decisions, reducing incentives for UK divergence in the first place. 

“Given the rules on trading venues in the EU and UK are virtually identical, we think equivalence is justified — and very necessary,” Mr O’Malia said.



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EU and US set to end Airbus-Boeing trade dispute after 17 years

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The EU and US are poised to resolve a 17-year dispute over aircraft subsidies, lifting the threat of billions of dollars in punitive tariffs on their economies in a boost to transatlantic relations. 

Diplomats and officials confirmed on Monday night that two days of intensive negotiations in Brussels had left the EU and the Biden administration with a draft deal on subsidy rules for Airbus and Boeing. The breakthrough is set to be finalised on Tuesday at US president Joe Biden’s first EU-US summit meeting in Brussels.

“I am very positive that we will find an agreement on the Airbus-Boeing issue today, in our conversation with our American friends,” Ursula von der Leyen, the European Commission president, said on Tuesday morning. “I am very positive and convinced that we will deliver together today.”

People close to the talks said the governments of Airbus’s three home countries in the EU — Germany, France, and Spain — were being consulted on the draft deal ahead of it being confirmed on Tuesday. 

The deal will take the form of a five-year accord to suspend punitive tariffs linked to the disagreement, coupled with the creation of a working group and ministerial dialogue on subsidy limits, according to people close to the talks.

The intention is that this will ensure the disagreement never re-emerges, including for new aircraft models.

The breakthrough will lift a cloud of uncertainty hanging over the airline sector, while removing the threat that EU and US consumer goods could again be hit with punitive tariffs because of the dispute. 

Those duties — on a wide range of products, from French wine to US spirits and sugarcane molasses — were suspended after the EU and US agreed in March to lift them for four months and to start negotiations on a solution. 


$7.5bn


Extra tariffs imposed by the US on European goods in October 2019

The Airbus-Boeing dispute is one of the longest running battles in the history of the World Trade Organization — a disagreement both sides have acknowledged they could increasingly ill-afford as they seek to forge closer co-operation in dealing with China’s model of state capitalism. 

EU trade commissioner Valdis Dombrovskis held talks with US trade representative Katherine Tai and commerce secretary Gina Raimondo in the days leading up the summit as the sides strove to get an agreement over the line. 

Tai’s office declined to comment.

Companies on both sides of the Atlantic have long called for a solution. The matter took on greater urgency after the US targeted European exports worth $7.5bn with extra tariffs in October 2019, while the EU imposed additional duties on $4bn of US exports last year. Both sets of measures were in line with WTO rulings in favour of each side.

But both the US and EU have been found over the years to have failed to properly implement WTO panel rulings on illegal subsidies for their aircraft manufacturing champions.

EU and US trade officials emphasised the complexity of the dispute, with each side taking issue with the other’s claim to have complied with WTO decisions. The nature of subsidies on each side of the Atlantic is also very different, with EU officials pointing to sizeable US defence contracts as one example. 

The end of the Airbus-Boeing dispute would remove one important irritant in trade relations, but others remain. 

Brussels last month held back from increasing tariffs on US goods as a goodwill gesture in a disagreement over Trump-era tariffs on European steel and aluminium. 

The two economies are also yet to fully bury their differences over digital taxes, with the issue now tied up with broader international talks. 

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Nato warns China’s military ambitions threaten international order

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Nato leaders have warned that China poses “systemic challenges” to the rules-based international order, in a sign of growing western unease over Beijing’s military ambitions.

Members of the transatlantic alliance convening in Brussels on Monday cited activities such as disinformation, Chinese military co-operation with Russia and the rapid expansion of China’s nuclear arsenal as part of the threat, according to a Nato communiqué.

The strength of the statement shows how far relations between the west and Beijing have deteriorated in the 18 months since Nato countries last met. Then they had issued a cautious statement about the “opportunities and challenges” presented by China.

The tougher language at US president Joe Biden’s first Nato summit comes as members of the 72-year-old cold war-era military pact vowed to widen co-operation in new theatres of conflict from cyber space to outer space. The Nato communiqué followed a tougher line from the weekend’s G7 meeting, when the club of rich democracies criticised China over human rights, trade and a lack of transparency over the origins of the coronavirus pandemic.

Jens Stoltenberg, Nato secretary-general, insisted Beijing was “not an adversary” but said the alliance needed to “engage with China to defend our security interests”.

“There is a strong convergence of views among allies,” he said, adding that Nato was primarily concerned about Beijing’s activities in the group’s Euro-Atlantic sphere of operation. “China’s growing influence and international policies present challenges to alliance security.”

China’s “stated ambitions and assertive behaviour” posed “systemic challenges to the rules-based international order and to areas relevant to alliance security”, said the summit communiqué, approved by the leaders of the 30 Nato member states.

“We call on China to uphold its international commitments and to act responsibly in the international system, including in the space, cyber and maritime domains, in keeping with its role as a major power.”

The communiqué pointed to China’s “coercive policies”, its accumulation of nuclear warheads and sophisticated delivery systems, and its participation in Russian military exercises in Atlantic region waters. Another trend troubling Nato allies is the involvement of Chinese companies in critical infrastructure in Europe, such as ports and via telecommunications company Huawei.

Nato said it would aim for “constructive dialogue” with Beijing “where possible”, including on climate change, in a sign of more nuanced views held by some of the alliance’s members.

The Nato broadside reflects an attempt by the Biden administration to use his first European trip to mobilise allies to push back against China.

Beijing hit back at criticism by the G7 club of rich democracies this weekend, accusing the group of “sinister intentions” and “artificially creating confrontation and friction”.

The Nato leaders also pressed ahead with efforts to modernise a grouping originally set up as bulwark to the Soviet Union. Nato is now pulling back from an era of “expeditionary” international missions, with its forces preparing to leave Afghanistan along with US troops after almost two decades.

The Nato heads of state and government approved a cyber defence strategy and extended existing powers to invoke the alliance’s “Article 5” principle of collective defence, in cases of co-ordinated cyber attacks.

“[This] will upgrade the defence, political and intelligence dimensions of cyber across the alliance,” Jake Sullivan, US national security adviser, said before the meeting.

UK prime minister Boris Johnson had also called for more investment in cyber defences in the wake of the Covid-19 pandemic, when hostile states were accused of carrying out cyber attacks on allies’ health systems.

Nato leaders also pushed through measures to strengthen their collective response to attacks on satellites, and to build capabilities in emerging technologies such as artificial intelligence. Members of the alliance have become increasingly preoccupied with potential military uses of AI and with the growing activities of China and Russia in outer space.

As well as confronting external threats, Nato faces some chronic internal divisions, notably between Turkey and some member states such as France in the eastern Mediterranean.

Additional reporting by Helen Warrell in London



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Biden says he is open to exchange of cybercriminals with Putin

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US president Joe Biden said he was open to Russian president Vladimir Putin’s proposal to hand over cybercriminals to the US if Washington did the same for Moscow, just days before the two leaders meet for a summit in Geneva.

Biden and Putin will sit down in Switzerland on Wednesday for their first face-to-face meeting since the former was sworn in as US president. Both leaders said at the weekend that relations between their two countries were at a low point, but Biden’s latest comments suggested there could be room for co-operation.

Speaking at the conclusion of a meeting of G7 leaders in the UK on Sunday, Biden told reporters he was receptive to Putin’s suggestion of reciprocal extradition of cybercriminals responsible for disruptive ransomware attacks.

Earlier on Sunday, Russian state TV aired an interview with Putin in which the Russian president said that Moscow and Washington must “assume equal commitments”.

“Russia will naturally do that but only if the other side — in this case the United States — agrees to the same and will also extradite corresponding criminals to the Russian Federation.”

Asked about Putin’s comments, Biden said: “Yes, I am open to, if there are crimes committed against Russia, that in fact are people committing those crimes are being harboured in the United States, I am committed to holding them accountable.”

“I was told as I was flying here, that [Putin] said that,” Biden added. “I think that is potentially a good sign of progress.”

An increasing number of audacious ransomware attacks has paralysed companies in recent weeks. These have included the disruption of the Colonial Pipeline, which provides petroleum supplies for much of the US east coast, as well as operations at JBS, the Brazilian meat processing company. The White House has said it believes both attacks originated in Russia.

Jake Sullivan, US national security adviser, later clarified that Biden had not signed up to a “prisoner swap”.

“What he was saying was that if Vladimir Putin wants to come and say I am prepared to make sure that cyber criminals are held accountable, Joe Biden is perfectly willing to show up and say cyber criminals can be held accountable in America, because they already are. That is what we do,” Sullivan told reporters on Air Force One en route to the Nato summit in Brussels, the second leg of Biden’s first foreign tour as president.

“This is not about exchanges or swaps or anything like that.”

Putin told NBC News in an interview that aired on Friday that relations between the US and Russia were at their “lowest point in recent years”. Biden on Sunday said that he agreed with the characterisation, but also pointed out areas where he believed the two countries could work together.

The White House confirmed on Saturday that Biden would hold a solo press conference following the summit with Putin, rather than share a stage as his predecessor Donald Trump did with the Russian president in Helsinki in 2018.

Joe Biden disembarks from Air Force One in Belgium on Sunday for a Nato summit
Joe Biden disembarks from Air Force One in Belgium on Sunday for a Nato summit © Benoit Doppagne/POOL/EPA-EFE/Shutterstock

“This is not a contest about who can do better in front of a press conference or try to embarrass each other,” Biden said. “It is about making myself very clear what the conditions are to get a better relationship.”

He added: “Russia has engaged in activities which we believe are contrary to international norms. But they have also bitten off some real problems they are going to have trouble chewing on. For example, the rebuilding of Syria, of Libya.”

“I am hopeful that we can find an accommodation that can save the lives of people in, for example, Libya.”



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