Brexit & financial services

Author (Corporate)
Series Title
Series Details No.7628 (12.07.18)
Publication Date 12/07/2018
Content Type

This House of Commons Library briefing paper (periodically updated since June 2016) brought together responses from financial organisations about the impact of the vote to leave the EU.

The vote to leave the EU had significant implications for the UK financial services sector, an economic sector which was critical to the economy. The degree of inter-linkage between the ‘City’ and the EU economies was substantial economically speaking and intricate in terms of the legislative interface.

Further information

Financial Services were of especial importance to the UK economy. The vote to leave the EU had significant implications for the financial services sector. The degree of inter-linkage between the ‘City’ and the EU economies was substantial, economically speaking, and intricate in terms of the legislative interface.

There was precious little certainty over what will happen next.

With respect to the regulatory framework, the new chief Executive of the FCA, Andrew Bailey, confirmed that whilst the FCA had set up an internal Brexit unit to deal with Brexit specific activity, its main work remained unchanged. Many of the FCA rules were derived from the EU and the FCA would continue to enforce existing rules and work to implement ones that had been agreed, but which were not yet in place. For the Regulator therefore it was ‘business as usual’.

Along with most other industrial and commercial sectors the more considered reaction of the industry to any question is 'it all depends'.

In the absence of any clear guidance on what the EU negotiations would lead to in terms of the treatment of services, commentators had largely been reduced to guessing what large institutions intended to do from their pre vote statements and matching these to the permutations of different possible negotiation outcomes.

In a sector with different interests and priorities and with a wide range of possible outcomes, the possible permutations of outcomes was very high.

The debate and commentary had been largely framed around whether banks and other would stay (in London) or go. Informing this choice were two issues:

+ timing
+ the likelihood of continued ‘passporting or equivalence.

Despite one banking commentator saying that most banks had their 'hands are quivering over the relocate button' currently, only one bank and the European Banking Authority have said that they were leaving.

Negative reaction to the July 2018 White Paper

On the 12 July 2018 the UK Government published a much anticipated White Paper The future relationship between the United Kingdom and the European Union.

While setting out plans for a UK-EU free trade area for goods, it proposed greater divergence in services. In the section dealing with financial services the White Paper said that the UK would propose a new economic and regulatory arrangement with the EU in financial services. The government suggested that it would seek a system of regulatory equivalence, rather than the previously preferred mutual recognition arrangement. Passporting was not possible.

In an immediate response the Policy Chairman of the City of London Corporation Catherine McGuinness expressed disappointment: 'Today’s Brexit white paper is a real blow for the UK’s financial and related professional services sector ... As the EU’s gateway to capital, the UK is a significant trading partner for the bloc. It’s in the interests of households and businesses on both sides of the Channel that an ambitious future trading relationship, covering services as well as goods, is secured.

Miles Celic, Chief Executive Officer, TheCityUK said 'The overriding issue for financial and related professional services firms is the ability to continue serving customers and clients. Mutual recognition would have been the best way to achieve this. It’s therefore regrettable and frustrating that this approach has been dropped before even making it to the negotiating table. In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach. The EU’s objections have always been political.

... Brexit was always going to result in access to the EU market being more difficult. Therefore, an effective and secure future regulatory relationship is vital. It is now urgent that we make rapid progress on the negotiations, both around the future relationship and on immediate issues for customers such as contract continuity'.

Source Link http://researchbriefings.files.parliament.uk/documents/CBP-7628/CBP-7628.pdf
Related Links
ESO: In Focus: Brexit - The United Kingdom and the European Union http://www.europeansources.info/record/brexit-the-united-kingdom-and-the-european-union/
ESO: Background information: Statement by the Chancellor following the EU referendum http://www.europeansources.info/record/speech-statement-by-the-chancellor-following-the-eu-referendum/
CEPR: VoxEU.org, 24.06.16: On the financial market consequences of Brexit http://voxeu.org/article/financial-market-consequences-brexit
Association for Financial Markets in Europe: Press Release 12.07.18: AFME welcomes publication of UK Government White Paper https://www.afme.eu/en/news/press-releases/2017/afme-welcomes-publication-of-uk-government-white-paper/
Politico, 01.08.18: City of London slashes Brexit job-loss estimate https://www.politico.eu/article/brexit-fintech-finance-banking-jobs-city-of-london-slashes-brexit-job-loss-estimate/
Institute for Government: Explainers, 10.04.18 (and periodically updated): Brexit and financial services https://www.instituteforgovernment.org.uk/explainers/brexit-and-financial-services
The City of London Corporation: Press Release, 12.07.18: Commenting following the publication of the Brexit White Paper today (12 July), Policy Chairman of the City of London Corporation Catherine McGuinness said https://news.cityoflondon.gov.uk/commenting-following-the-publication-of-the-brexit-white-paper-today-12-july-policy-chairman-of-the-city-of-london-corporation-catherine-mcguinness-said/
Business Insider, 12.07.18: 'A real blow': The City of London is furious with the government's Brexit plan for finance http://uk.businessinsider.com/city-of-london-government-brexit-plan-for-finance-2018-7
CER Bulletin, No. 120, June/July 2018: On Brexit, TTIP and the City of London (et al) http://www.europeansources.info/record/on-brexit-ttip-and-the-city-of-london/
Open Europe, 04.07.18: The significance of London’s financial cluster for the EU27 https://openeurope.org.uk/today/blog/the-significance-of-londons-financial-cluster-for-the-eu27/
The CityUK: Press Release, 12.07.18: TheCityUK responds to the government’s Brexit White Paper https://www.thecityuk.com/news/thecityuk-responds-to-the-governments-brexit-white-paper/
United Kingdom: HM Treasury: Policy Paper, June 2018: Guidance. Financial services legislation under the EU (Withdrawal) Act http://www.europeansources.info/record/guidance-financial-services-legislation-under-the-eu-withdrawal-act/
United Kingdom: House of Commons: Library: Briefing Paper No.6193 (25.04.18): Financial services: contribution to the UK economy http://www.europeansources.info/record/financial-services-contribution-to-the-uk-economy/
The Conversation, 07.03.18: Brexit: why Britain’s hopes for a special financial services deal are set to be dashed https://theconversation.com/brexit-why-britains-hopes-for-a-special-financial-services-deal-are-set-to-be-dashed-93018
Centre for European Reform: Policy Brief March 2018: Brexit and the Financial Services Industry: the Story So Far http://www.europeansources.info/record/brexit-and-the-financial-services-industry-the-story-so-far/
TheCityUK, 2017: Brexit and UK-Based financial and related professional services http://www.europeansources.info/record/brexit-and-uk-based-financial-and-related-professional-services/
The City of London Corporation: The City of London Corporation and Brexit https://www.cityoflondon.gov.uk/business/eu-and-regulation/Pages/city-corporation-brexit.aspx
Reuters, 11.01.18: Brexit caused 37 percent fall in new London financial jobs in December - report https://uk.reuters.com/article/uk-britain-eu-employment/brexit-caused-37-percent-fall-in-new-london-financial-jobs-in-december-report-idUKKBN1F0003
UK: GOV.UK: Press Release, 11.01.18: PM meeting with financial services firms https://www.gov.uk/government/news/pm-meeting-with-financial-services-firms
House of Lords: Select Committee on the European Union, 9th Report (2016-17)HL81: Brexit: financial services http://www.europeansources.info/record/brexit-financial-services/
LSE European Institute: EuroppBlog, 30.07.18: Brexit’s epicentre: London’s financial services sector and its place in the UK economy http://blogs.lse.ac.uk/europpblog/2018/07/30/brexits-epicentre-londons-financial-services-sector-and-its-place-in-the-uk-economy/
ESO: Find further information sources in ESO relating to Brexit and financial services http://www.europeansources.info/advSearchLink?keyword=financial%20services%20brexit%20after%20&searchOption=all

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