Bank of England Governor Andrew Bailey criticized the EU on the way it handled decisions on the U.K's financial market access to the bloc, according to City A.M.

Bailey told the U.K.'s Treasury Select Committee that the EU's demand for more information from the Treasury on its intentions for future regulatory decisions is "problematic" and that there are three potential reasons for it: the EU could be thinking that the U.K.'s rules should never change; the rules should only change when the bloc's rules change, or rule taking, which the U.K. does not support; or that both parties will change the rules "when it's sensible to do so" and to be transparent about it to all, according to the Jan. 6 report.

Bailey said the third reason is the "sensible" one. "It's nothing unique and that seems to me the sensible basis and that's the basis to judge equivalence," he added.

"I fail to see why people would want to close themselves off from open markets," Bailey said.

An 18-month extension was given to the bloc's banks to use U.K.-based clearing houses on an equivalence basis and the U.K. Financial Conduct Authority said it will adopt EU rules for derivatives trading under the Markets in Financial Instruments Regulation, or MiFIR, to avoid market disruption post-Brexit. However, there still is no agreement on equivalence of financial regulation between the two sides.

The U.K. and the EU reached a trade deal a few days before the Brexit transition period ended Dec. 31, 2020, but the agreement does not remove licensing barriers that arose as a result of Brexit, a concern for the finance sector, and negotiations over the U.K.'s future relationship with the bloc will continue.

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In November 2020, the committee launched an inquiry into the future of financial services, as the EU does not expect further flexibility from regulators after the transition period ended.

Talks between the EU and Treasury Minister John Glen have been set in the week of Jan. 6 in hopes of reaching a memorandum of understanding related to future regulatory cooperation on financial services that is expected to be signed by March, but equivalence is not expected to be discussed, City A.M. reported.

Meanwhile, Bailey told the parliamentary committee that U.K. banks should freely set their dividends as it is not the BoE's intention to take over setting dividends, following recommendations in March 2020 to suspend dividend payouts due to the COVID-19 pandemic, according to Reuters.

The regulator allowed banks to resume dividend payouts in December 2020 but with constraints. Dividends should not exceed the higher of 20 basis points of end of 2020 risk-weighted assets or 25% of cumulative eight quarter profits from 2019 to 2020 after deducting prior shareholder distributions over that period.