Philip Hammond gave his long-awaited speech on financial services and the future. He referenced:
- that financial services is not just a London business and that two-thirds of financial services jobs in the UK are outside London
- Theresa May’s speech setting out what the UK wants from a partnership with the remaining EU
- his challenge to the assertion that financial services can’t be part of a free trade agreement
- why it is in everyone’s interests to continue close collaboration on cross-border financial services and
- why it is not a given that any loss of market share in London is an automatic gain for another EU hub.
He spoke of studies which have shown the costs to Europe’s business and consumers of being unable to use British financial institutions and the British financial market infrastructure. He noted also that the real beneficiaries of any London market fragmentation would not be other EU jurisdictions but more likely New York, Singapore and Hong Kong.
He stressed that the EU has never negotiated the same deal twice and has several bespoke arrangements with other third countries, and free trade agreements depending on the relevant jurisdiction. So it is clear any deal based wholly on precedent cannot deliver the depth and breadth of market access that the latest set of EU guidelines (not yet made public) envisage. Any trade deal must start from the basis that the respective economies are deeply interconnected and the regulatory frameworks effectively identical – not to mention the close co-operation of regulators and the inbuilt reliance on cross-border financial services by both businesses and consumers.
He noted the initial moves to include financial services within both the TTIP and CETA, which would have involved markets with different rules and low levels of interconnectedness and noted that from the starting point the UK has, the objective should be a less challenging one.
That said, he noted also the risks, and what the UK has already done to minimise stability and contagion risks. He then reiterated the principles he had set out in June 2017:
- a process for establishing regulatory requirements for cross-border trade with reciprocal – and noted there would need to be an objective process to determine whether where future rules diverge they provide sufficiently equivalent regulatory outcomes;
- reliable cooperation agreements that prioritise financial stability – noting there is not reason not to continue a very close working relationship with EU supervisors, perhaps involving a version of supervisory colleges; and
- a legal framework to make the structure last and be reliable – this could focus on knowing the consequences if the UK makes a choice to not maintain equivalent outcomes.