Prime Minister Keir Starmer's pursuit of closer ties with the European Union is meeting quiet but firm resistance from the heart of the UK's financial sector. The City of London has delivered a clear message: thanks, but no thanks, when it comes to aligning financial services rules with the EU's single market.
Bonuses, Flexibility, and Financial Resilience
One immediate point of divergence is the contentious issue of bankers' bonuses. The EU's cap on variable pay remains firmly in place, while the UK has scrapped its own restrictions. This is not merely a perk for wealthy financiers; industry leaders argue the UK model offers crucial operational flexibility. Bank executives highlight the ability to adjust payrolls efficiently, contrasting with the EU's tendency towards higher fixed salaries to offset bonus limits.
Interestingly, UK regulators have historically shared this scepticism. They contend that the "fat basic salaries" common in Europe could actually undermine a bank's ability to preserve capital during a crisis, suggesting that restraint might weaken financial resilience rather than bolster it.
The Global Race: Speed Versus Uniformity
Beyond compensation, the core of the City's argument centres on autonomy, speed, and global competition. With the United States, not the EU, as the UK's largest market for financial services, there is a palpable fear that aligning with Brussels' slower, more conservative regulatory pace would leave London lagging behind a deregulatory push under a potential second Trump administration.
"The UK needs to keep up with that," explained one pro-European banker, who requested anonymity. "If we align with the EU on financial services regulation... Europe is just too slow." The ability to move swiftly is deemed critical as technology reshapes finance, from the rise of asset-backed stablecoins to other fintech innovations where European bureaucracy is viewed with apprehension.
Competitive Landscape and a Resurgent City
This stance is echoed by TheCityUK, the sector's leading lobby group. Its chief executive, Miles Celic, emphasises the trade-off: closer cooperation with Europe makes sense, but rejoining the Single Market would mean trading flexibility for uniformity. The UK would become a rule-taker, with less scope to forge its own path or strike bespoke global deals.
The City's confidence, shaken by Brexit's initial fallout, has been recovering. The 2025 Global Financial Centres Index placed London second globally, just one point behind New York and as the sole European entry in the top ten. Rivals like Frankfurt (12th), Paris (18th), and Dublin (20th) all lost ground. This resurgence underscores a prevailing view: in financial services, Europe arguably needs London's depth and liquidity more than London needs EU membership.
While political debates about Single Market membership continue nationwide, the mood in the Square Mile is pragmatic. The primary competitor is now viewed as Wall Street, not the EU. Consequently, the industry's powerful voices are urging the government to prioritise the freedom to compete globally over the benefits of a narrower regulatory alignment with Europe.
