Yahoo Finance UK banks tell May: a Canada-style Brexit deal is not good enough
Britain’s banks have written to Theresa May and Philip Hammond warning that a Canada-style free trade agreement with the EU post-Brexit is not ambitious enough and that alignment with EU rules on finance is crucial.
The open letter from UK Finance, which represents major banks and other financial institutions, said the government must place the City at the centre of Brexit trade talks or risk dealing a major blow to the economy.
“Ceta [the Comprehensive and Economic Trade Agreement between the EU and Canada] is an interesting template, but given the UK and the EU 27 start from a position of regulatory convergence that the UK and Canada didn’t have, we should seek to be far more ambitious,” said the letter.
The banks congratulated May on successfully negotiating a move to the second phase of withdrawal negotiations with the EU, which it called the first substantive evidence that a final deal could be agreed.
Banks, insurance companies and other financial firms in the EEA – the EU along with Iceland, Liechtenstein and Norway – are able to do business in the UK with separate regulatory approval. The system is known as passporting and allows firms to trade freely across borders. It applies the other way round, so that UK firms can operate in other EEA countries.
The conundrum facing the Bank of England is that Brexit will change this (unless passporting is replicated in any deal with the remaining 27 members of the EU). This means those firms which currently use passporting to operate in the UK will need to be regulated in the UK by the Bank's regulation arm, the Prudential Regulation Authority. In the case of banking, Bank of England data show that about 70 banks could be impacted.
But the numbers could be bigger across the entire financial system. There are nine different passports that banks and financial firms use to provide banking services alone.
The Financial Conduct Authority, the City regulator, last year published data showing just over 8,000 companies authorised in other EU states use these rules to do business in the UK while 5,476 UK-registered firms hold at least one passport to do business in another EU or EEA member state. All that will need to be sorted out in the negotiations ahead.
But the trade body called on the government to avoid a cliff-edge Brexit and broker a smooth transition by focusing on alignment with Europe.
“Pragmatic decisions to align the two regimes from a regulatory perspective ... should be seen not as concessions, but as mechanisms to maximise benefits and choice within a deep regional capital market for the benefit of citizens and our economies,” it said. The alternative is “an unnecessary loss” of GDP, it added.
“A high degree of mutual cross-border market access is fundamental to the continued success of our financial services sector – and to the success of the economies and citizens which our sector serves in the UK and the EU 27,” UK Finance wrote.
The letter reflects anxiety in the UK about London’s future as a major financial centre after Britain leaves the EU in March 2019. Banks have made contingency plans to move jobs from the UK to other European cities such as Frankfurt, Paris and Madrid in order to guarantee continued access to the single market after Brexit.
The boss of Goldman Sachs, Lloyd Blankfein, piled pressure on Theresa May in October in a teasing tweet that said he would be “spending a lot more time” in Frankfurt from now on.
He tweeted: “Just left Frankfurt. Great meetings, great weather, really enjoyed it. Good, because I’ll be spending a lot more time there. #Brexit.”
Just left Frankfurt. Great meetings, great weather, really enjoyed it. Good, because I'll be spending a lot more time there. #Brexit
— Lloyd Blankfein (@lloydblankfein) October 19, 2017
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