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Sir Keir Starmer will exclude the City of London from his push for “closer alignment” with the EU, following lobbying by financial services firms against any return to Brussels rules.
British government officials told the FT that while ministers wanted “closer co-operation” with the EU on financial services, the prime minister had no intention of trying to reintegrate the sector with the Brussels rule book.
Starmer’s comment this week that “if it’s in our national interest to have even closer alignment with the single market, then we should consider that” raised concerns in the Square Mile.
Some ministers including David Lammy, deputy prime minister, have talked up the benefits of a new customs union with the EU.
“It’s the last thing we want to be talking about,” said one City lobbyist, arguing that British financial services had moved on from the fraught debate about single market access in the aftermath of the 2016 Brexit vote.
Steven Fine, chief executive of investment bank Peel Hunt, told the FT: “The UK has made substantial progress on financial services reform over the past few years and most regulatory lawyers will tell you that we have significantly less friction in our regulatory framework compared with most jurisdictions in Europe. You don’t want to create potential uncertainty just as the City is recovering its mojo.”
One City non-executive director added: “There’s an argument that financial services doesn’t need to be included as our dominant position means the EU needs us more than we need them.”
The question of Britain again becoming a “rule-taker” from Brussels — fiercely opposed by the Conservatives and Reform UK — has come back on to the agenda as some Labour MPs and the Liberal Democrats push for closer economic integration.
Ministers will present legislation to parliament in the coming weeks to allow EU laws in specific areas such as food standards, animal welfare to facilitate smoother trade.
Brexit imposed a costly burden on British banks and after 2016 many of them lobbied for an “equivalence” deal to maintain EU market access in return for aligning UK banking regulation with Brussels.
But since then, interest in such a deal among financiers has faded. “Ten years ago equivalence would have been very valuable, but now the world has moved on,” said Kerstin Mathias, international affairs director of the UK Finance trade body.
Miles Celic, chief executive of TheCityUK, which represents the financial services industry, said closer co-operation with the EU made sense. “But rejoining the single market or a customs union would not be a simple upgrade. The UK would risk trading flexibility for uniformity: less scope to shape its own rules and fewer chances to cut bespoke deals beyond Europe.”
One government official said the City’s concerns were “valid”, and ministers were “not looking at alignment” of rules affecting financial services. “This is one area where we have diverged a lot from the EU since Brexit.”
Another official said: “It doesn’t really make sense to follow EU rules, the UK is the bigger market.”
A government spokesperson said the UK-EU “common understanding” struck last year — which opened the way for Britain adopting Brussels rules in areas like food standards and energy — was narrowly drawn and did not include financial services.
“However the EU is the UK’s second largest trading partner for financial services and we continue to explore areas of co-operation where it is in our economy’s interest.”
EU financial services commissioner Maria Luís Albuquerque with Bank of England governor Andrew Bailey at the Mansion House speech in July 2025 © Charlie Bibby/FT
In a sign of attempts to forge closer co-operation between the two sides, chancellor Rachel Reeves has attended meetings of EU finance ministers, while EU financial services commissioner Maria Luís Albuquerque attended Reeves’ Mansion House speech last year.
Reeves has also spoken about “dynamic alignment” to help industries such as the chemicals sector overcome post-Brexit obstacles.
Mats Persson, macro strategy leader at EY-Parthenon, said more companies “are seeing the benefits of the UK’s ability to regulate in a nimble and innovative way, particularly in relation to emerging technology and access to global markets”.
Last September, the UK and US launched a task force to examine ways to enhance collaboration in areas such as digital assets and capital markets, a move that would have been harder when Britain was still in the EU.
UK regulators have recently taken advantage of their ability to remove or rewrite rules inherited from EU directives, such as scrapping the cap on bankers’ bonuses or delaying the introduction of the so-called Basel III reforms on bank capital.
Financial services ranks as one of the UK’s largest sectors, accounting for around 9 per cent of economic output and providing 1.1mn jobs.
The sector’s real-terms output has fallen since the financial crisis but finance and related professional services remain a big contributor to tax revenue, generating £110bn in the year ended March 2023, according to analysis from PwC.
Paul Manduca, chair of wealth manager St James’s Place, expressed scepticism about the likelihood of closer alignment with Europe. “The reason we won’t be able to go back into the Customs Union and single market is because Europe wouldn’t have us, not with Reform UK leading the polls. Why do all the work to let us in, only for it all to unravel again?”