LONDON — Donald Trump has already soured relations between the EU and U.K. — without even trying.
For the U.K.’s City of London financial powerhouse, it’s taken years of painstaking diplomacy to get London and Brussels back around the table in the fallout from Brexit.
But the Friday before Trump’s inauguration as the 47th president of the United States, the Bank of England (BoE) made a shock move to delay the U.K.’s introduction of global banking rules.
It was a solo decision from the U.K. amid concerns Trump’s new administration will embark on a deregulatory agenda for its financial giants. But it provoked immediate fury in Brussels over a lack of coordination.
It’s an early sign of which way the U.K. may move on its prized financial services industry. Keeping pace with New York may be far more important than working hand-in-hand with Europe — even if London wants closer ties with Brussels, too.
“We’ve gone ahead of other European countries,” Chancellor Rachel Reeves said at the World Economic Forum last month. “We’ve had that flexibility. We can be more nimble. We are taking advantage of that.”
It’s a message that clashes with the charm offensive Reeves embarked on in Brussels in December as the Labour government tries to “reset” relations with the bloc.
Reeves told European finance ministers Britain wanted a “deeper, more mature relationship” and wouldn’t pick Trump over the EU.
The U.K.’s vast financial services industry has been hoping improving political mood music would gradually rebuild closer ties that have soured substantially since Brexit.
But Britain’s decision on banking threatens to undermine the slow and steady progress toward rebuilding trust with the bloc.
Basel, what?
The new Brexit flashpoint stems from uncertainty around U.S. President Donald Trump’s plans for international banking reforms, known as the final Basel III rules or the Basel endgame.
The reforms aim to make banks safer and keep taxpayers off the hook for any collapse in response to the bailouts seen in the 2008 financial crisis.
Even without Trump, the banking industries in the U.K. and EU have lobbied heavily to water down key aspects of the rules, warning of the potential impact of a capital hike on lending to the economy.
Now Washington is expected to rewrite or even rip up its proposals entirely — creating a dilemma in London and Brussels.
The U.K. and EU could push on with their own plans regardless to shore up their banking sectors and show their faith in international rulemaking.
Or, they could wait and see to avoid creating a competitive disadvantage with America’s banking giants.
Amid searing political pressure from the U.K. Treasury for the country’s regulators to prioritize economic growth at all costs, the BoE chose to delay.
In the surprise move three days before Trump reentered the Oval Office, the British banking regulator pushed back the U.K.’s plans to bring in the reforms by a year until Jan. 1, 2027 to allow “more time for greater clarity” in the United States.
“We’re the two largest capital markets in the world, and until we know what the U.S. is going to do, let’s be cautious in cracking ahead too quickly,” said one U.K. banking lobbyist, granted anonymity to speak freely.
“Most firms were probably taken a bit by surprise by this — but in a good way,” they added.
Different incentives
It was not such a welcome surprise in Brussels.
The EU already started bringing its reforms into effect at the turn of the year — and would have to reopen contentious legislation to delay further.
“They [the U.K.] went for the whole package,” said a second banking lobbyist. “And that’s what the EU cannot do without a good amount of legal gymnastics.”
The European Commission does have the power to delay part of the international rulebook that affects banks’ trading books — which will likely be the most impacted by Trump’s administration — without having to resort to more legislation.
But the EU executive has already delayed those measures by one year, until January 2026, and its own legislation only allows it to postpone the rules for up to two years. So Brussels has an incentive to find out exactly what Trump, and in turn the U.K., will do before deciding on its plan of action.
The BoE meanwhile wanted to give banks clarity and the breathing space of a least a year to get ready, as it was due to publish its final rules this January.
Plus, the resignation of the Federal Reserve’s top banking cop, Michael Barr — who left to avoid a clash with Trump — only raised the uncertainty for the U.K. central bank.
Who’s the outlier now?
At the very top of the Brussels machinery, there was some knowledge of what was coming.
A senior U.K. Treasury official, Gwyneth Nurse, gave the EU’s senior financial-services official, John Berrigan, a heads up of a week, according to an official with knowledge of the call. (Like others quoted in this story, the official was granted anonymity to speak freely.)
But that hasn’t lessened the sting in Brussels. A senior EU official’s hopes of coordination on Basel before Christmas were dashed by the move.
One EU diplomat, messaging on the move, adopted a more neutral tone: “It took us by surprise but I think the other way around we don’t consult our legislative actions with them either,” they wrote, adding a winking face emoji.
Yet it’s particularly galling for some on the EU side because of Britain’s attitude on Basel.
The BoE has spent the last few years complaining about the EU’s plans — describing them as an “international outlier” — after the bloc created a series of loopholes to protect its banks.
EU officials think that’s a bit rich given they are now implementing the rules while the U.K. gives its banks another year off.
The U.K. regulator said it “consulted” the Treasury on the Basel decision, following weeks of intense and overt political pressure on the country’s regulators to pursue “competitiveness” over safety.
Some EU officials now wonder if the U.K. will deregulate further to try to keep pace with Trump — including with potentially more substantive changes on the Basel banking rules once the U.S. plan takes shape.
Whether or not that happens, the suspicions that dogged relations directly after Brexit aren’t far under the surface.
Kathryn Carlson and James Fitzgerland contributed reporting.
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