Financial services want clarity on post-Brexit trade with EU
UK financial services firms need clarity on post-Brexit EU trading arrangements before March, the chairman of Britain’s leading sector lobby group has said.
In a speech in London John McFarlane, chairman of The City UK, said securing “the right long-term outcome” is more important than the details of a transition agreement.
He added: “A transitional arrangement is valuable if it leads to a favourable agreement, provides time to secure this and ensures financial stability. However, a transition to exit only is of limited and diminishing value. For transitioning to be workable, it will require a firm legal and regulatory underpinning. Such an arrangement doesn’t currently exist, and while we are working on how this might be arranged, we mustn’t underestimate its difficulty. But we are optimistic.
“Since exit from the EU is not far away, time is of the essence. The longer it takes to secure a services trade agreement and a transition arrangement, the more damage will be done.
“Firms are planning to ramp up their spending on contingency from the beginning of next year and need clarity on the post-Brexit arrangements in the first quarter.”
Mr McFarlane said there was “a tangible threat of a cliff-edge” in a number of areas and firms had to have plans in place to maintain their business and serve their customers.
He warned: “Any move to transfer euro and EU transactions from a cross-currency netting or clearing system into a separate EU entity will inevitably be less economic – transaction costs will rise, as will margin and capital requirements.
“It could even place at risk the economic viability of continuing to provide such services, other than in London or New York.”
Mr McFarlane, who is also chairman of Barclays, said the UK should not consider a goods-only trade agreement with the EU27 as it has a large goods trade deficit with them, partly offset by a surplus in services.
He said: “What should be pursued is a trade agreement on both goods and services. Since the EU retain a significant net surplus, rationally this should be achievable.
“In my mind, it is not helpful, to rely on off-the-shelf EU solutions like Norway or Canada. The UK financial and related professional services sector is different. It is also unique, and demands a bespoke approach.”
In his speech to the The City UK’s annual dinner, attended by Chancellor Phillip Hammond, Mr McFarlane described Britain’s financial services sector and its ecosytem as “vital national assets”. More than 2.2 million people are employed by the industry, two-thirds outside London, including 56,000 in Wales. The sector provides more than 10% of UK economic output and contributes more than £86bn in tax receipts to the Exchequer.
Mr McFarlane said Britain’s departure from the EU in March 2019 is a reality the sector had to accept, but what mattered was creating a new relationship with the EU and the rest of the world.
He said: “In doing so, we need to be realistic that in leaving the EU we cannot retain all the benefits we enjoyed as a full member. Brexit is therefore an impediment to the sector’s ability to conduct its business and serve its customers and clients.
“Some activities currently performed here will be required to move into the EU. Should this occur in areas that rationally and economically should be retained in the UK, this will prove detrimental to everyone.”
He added: “London is not the UK’s financial centre, it is the world’s financial centre for everyone’s benefit. It exists as the global financial centre because it has a genuine economic advantage.
“Other centres will struggle in the near term to offer similar benefits, and a move to them will result in detrimental outcomes for everyone.”
The International Regulatory Strategy Group (IRSG) will today publish a report urging a review of the UK’s rule-making system for financial services post-Brexit.
When Britain leaves the EU, rulemaking powers currently jointly exercised by the European Parliament and member states through the Council of Ministers, and responsibilities from the European supervisory authorities (ESAs) and other EU institutions, will be transferred to the FCA and the Bank of England.
The IRSG, a public-private partnership between TheCityUK and the City of London Corporation, urged the UK Government to prioritise these issues as the EU Withdrawal Bill goes through Parliament. It said processes need to be put in place for ensuring financial regulation remains trusted and effective.