Issue of the week: a financial deal for the City?
The pound has leapt on rumours of a Brexit deal – so why are so many financiers unhappy?
Downing Street last week poured cold water on reports that an elusive Brexit deal on financial services was almost secured, said Jessica Clark in City AM. “When the BBC chooses to lead its bulletin on a speculative page 14 news story, it is time for everybody to take a deep breath,” said a spokesperson. But even a whiff of progress was enough to send the pound leaping by 1% against the dollar. Britain is hoping for “an improved version” of the EU’S “equivalence” system, which allows foreign firms to trade in the bloc if their rules are aligned to Europe’s. But concerns are growing among some financiers that the new arrangements – which would give City firms a similar level of access to the EU as major US and Japanese companies – could fall far short of what is needed.
In the summer, the Government adopted “enhanced equivalence” as its official negotiating position, ditching an earlier plan to fight for a system of “mutual recognition”, which would have nearly “replicated the current regime”, said Patrick Jenkins in the FT. That plan was deemed unworkable by the EU’S chief Brexit negotiator, Michel Barnier. The City, unhappy at the time, has since largely “rallied behind” the “enhanced equivalence” idea – hoping to win improvements, particularly in areas such as securities trading, corporate lending and insurance, “which are not covered by relevant EU directives”. The word on the street now is that these haven’t been forthcoming. Sterling may be up, but bankers aren’t cheering the prospective deal, said Christopher Thompson on Reuters Breakingviews. And they “are probably the better judge of how much there is to celebrate”. According to one City lawyer, an unenhanced financial services deal may only “be as good as a hard Brexit”. And that “would be good for neither bankers nor the pound”.
“Whingeing motoring chiefs continue to make the most noise about Brexit. But it is financial services that had the most to lose from no deal,” said Alex Brummer in the Daily Mail: the City achieved a £68bn global trade surplus last year. That Britain has so far “safeguarded most of its wholesale markets” from continental challengers is purely thanks to “the parlous state of European banking”. But the EU remains determined “to reclaim euro-denominated trading”. The biggest beneficiaries from this could, paradoxically, be Jpmorgan and other US banks with the clout “to establish bridgeheads in the eurozone”. Jpmorgan boss Jamie Dimon this week gave a clear indication of his bank’s direction of travel, by announcing a sizeable investment in one of Paris’s poorest districts. Clearly, “the City needs to lift its game”.