UK finance minister Philip Hammond finally laid out the country’s position on Brexit and financial services in full on Wednesday, in a speech greeted warmly by the City. However, it was in stark contrast to the position of some EU member states, notably France, that financial services cannot be included in a free trade agreement.
The UK financial services
industry has been in despair since the referendum, baffled by the lack of
government clarity on financial services so far in the Brexit process.
Hammond’s speech on Wednesday laid out a clear message about the UK's
Chancellor called for an arrangement backed by “principles of mutual
recognition and reciprocal regulatory equivalence, provided it is objectively
assessed, with proper governance structures, dispute resolution mechanisms and
sensible notice periods to market participants”.
that, although the UK and EU would be “separate jurisdictions”, both would need
to maintain a structured regulatory dialogue to discuss rules proposed by
Amazed and surprised
Chancellor's ambitious proposals were largely welcomed by the financial
bank executive who has been dealing with the government and the EU throughout
the Brexit process said he had been “amazed and surprised” by a speech that had
in effect encompassed all the City’s private wishes for Brexit.
exactly what the industry has been telling the Treasury it needs to do for six
months. The problem is everyone has seen this as a regulatory issue, but
financial services is really a trade issue,” he said.
negotiation starts with you asking for what you think you might get. You ask
for far more than that and both sides aim to get something they ask for.
the right way to do it, and the industry has got from Philip Hammond pretty
much everything it asked for on mutual recognition and dispute settlements
“We are all
pleased that the Treasury and government have accepted these arguments.”
The EU is
understandably not so keen on giving the UK everything it asks for on financial
services and, even before Hammond made his (widely trailed) speech, the French
finance minister, Bruno Le Maire, said financial services could not be part of
any trade deal.
ministers have also said that, as financial services have not been part of free
trade deals in the past, they could not be part of one for the UK.
Tried it twice
pointed out in his speech that the EU has pursued free trade agreements in the past
that included financial services, most notably with the US and Canada.
UK and EU already have aligned regulatory environments, negotiations should be
easier than those with completely divergent regulations.
itself pursued ambitious financial services co-operation in its proposals for
[the Transatlantic Trade and Investment Partnership],” said the Chancellor,
adding that TTIP and the Comprehensive Economic and Trade Agreement (CETA), a
planned deal with Canada, originally described a deeper partnership that would
have gone beyond a traditional free trade agreement.
because, back then, British and French officials worked hand-in-hand on the
proposals with the Commission,” the chancellor said.
executive said the financial services industry felt France was opposing a free
trade agreement on financial services out of self-interest and hoped banks
would move operations to Paris.
also pointed out that Michel Barnier, Europe's chief Brexit negotiator, was
supposed to be determining the Commission's stance, not the French finance
Commission is ideological and doctrinaire, and this is the approach which it is
starting from, which is fair enough. But that doesn’t get you to a solution
unless they are planning to just roll the UK over like they do to other
countries,” the bank executive said.
depends [on] how the Commission sees the relationship with the UK, as a partner
or as an enemy. I would be surprised if they saw the UK as a source of Europe's
Parliament and precedents
European Parliament will also have a say in the post-Brexit environment and,
while it is understood to accept that there is no precedent for a free trade
deal that includes financial services, the idea is not out of the question for
none of the trading agreements Europe has with any other country includes
financial services, so I am not sure a new EU/UK trading agreement would cover
that,” said a source in the European Parliament.
be a first. In that regard, it would be something to hope for.”
continued that it was hard for the EU to take a position on a potential free
trade deal when the UK still had not outlined a clear position.
Hammond’s speech is being seen by the City as a watershed moment, which finally
gives an indication of a firm UK government position on financial services
told after the Prime Minister’s speech that the Chancellor would raise the
issue of financial services and that Treasury owns this bit of policy, and we
now assume that the Treasury is running this for the whole of the government,”
said the bank executive.
“We’re quite bullish. Everyone
realises there is a long hard slog ahead, but at least we have got the UK
government to commit to a positive strong agenda rather than going for the
lowest common denominator."GC