The UK’s financial sector is hoping that the government will support an “ambitious” trade pact between Britain and the European Union that will replicate much of the current EU/UK financial services industry rules, in a bid to save jobs.
The International Regulatory Strategy Group (IRSG) – set up to try and spur the UK government into action – is trying to prevent a costly shift of jobs and business to the continent once the country leaves the EU bloc, according to a draft report seen by news agency Reuters.
Unless Britain negotiates new trading relations with the EU, banks, insurers and fund managers in Britain could be locked out of the bloc’s markets when it leaves the EU in March 2019.
The Reuters report said that the IRSG draft report, to be submitted to the British government in September, that such a trade pact would allow UK firms to operate in the EU without the cost of having a local licence.
“The proposals in the report are intended to achieve a level of mutual access for EU and UK firms, which is as close as possible to the current levels of access that exist for such firms within the EU framework,” the report said.
The report admitted negotiating such a pact could be “challenging” as EU states are likely to oppose the deal, given the financial incentives of attracting business away from the UK.
As reported, other EU financial centres such as Paris and Frankfurt have been vying to attract London’s financial businesses since the Brexit vote, with some firms already committed to moving infrastructure and staff.
Currently, banks authorised in London can “passport” or offer their services to customers across the EU without the need for a licence in each country, but this will end when Britain leaves, forcing the country to agree new trading terms.
Initially, the financial sector called for continued full passporting rights after Brexit, which is being negotiated over two years since Britain triggered the process in March, following a referendum vote in June last year.
The new proposals mark a departure from that stance, that could be seen as a recognition that the EU is likely to rule out future ‘passporting’.
As reported, the UK government ruled out special support for the City, despite its £71.4bn input to the country’s GDP (11.8% of the country’s total) and repeated despite requests from City delegations for emergency support.
The IRSG is sponsored by the City of London Corporation and TheCityUK, Britain’s most powerful financial lobby.
Its report, seen by Reuters, sets out how a trade pact for financial services could be structured and policed by a new dispute resolution body with powers to sanction breaches.
“The IRSG is aware that there will be challenges associated with developing the EU/UK Agreement… and require the parties to reach agreement on a number of novel issues – in particular, with regard to allowing a firm from the other party to have access to their markets without having to obtain a local licence,” Reuters quoted the report as stating.
The report said it may be “appropriate to have a lighter touch regime” for wholesale financial business between banks, but this would not be appropriate when retail customers are involved.
Financial Services Forum
Britain and the EU could also create a “Financial Services Forum” to encourage “continuing alignment” by sharing information, and participating in the development of new laws and regulations.
As reported, the Financial Conduct Authority (FCA) has written to a number of asset management firms based in the UK, asking them to reveal their plans over Brexit, in a bid to plan for any potential mass outflows from London to other European bases.
Britain’s finance ministry did not respond to a request for comment on the leaked document.
TheCityUK chief executive Miles Celic told Reuters he has already been making the case for mutual recognition during visits to Brussels and other European capitals. “The general response has been that while ambitious, it is not unrealistic,” he said.