Britain’s finance industry has given up on efforts to keep full access to the European Union after Brexit and is pushing instead for a more limited trade deal that would potentially exclude some financial products.
Banks, insurers and asset managers have come to the conclusion there is no realistic chance of maintaining full passporting rights after Brexit that would allow them to sell all their services across the 28-nation bloc from Britain.
TheCityUK, the country’ most powerful financial lobby group, has listed 17 points in a two-page document published on Thursday that calls for limited market access for some finance sectors based on a pact in which Britain and the EU would accept each other’s rules. This would keep the door open for cross-border trading of stocks and bonds, and sales of certain other products.
The future of London as Europe’s financial center is one of the biggest issues in Brexit talks because it is Britain’s largest export sector and biggest source of corporate tax revenue. There have been estimates that Britain’s finance industry could lose up to 38 billion pounds ($46.07 billion) in revenue in a so-called “hard Brexit” that would restrict its access to the EU single market.
TheCityUK proposals mark a shift away from calls for full passporting rights to be maintained for the finance industry after Brexit.
“I am confident that this represents in broad shape the key priorities for the industry,” TheCityUK Chief Executive Officer Miles Celic told Reuters.
“There are a multiple number of documents out there of stuff at significant length. So there was a sense among our membership to filter down what the key asks were into a single place.”
By pushing for a bespoke deal there is a risk that some financial sectors may be excluded from any final settlement. With some bankers expecting no market access for some retail financial products.
But TheCityUK document is the first attempt to condense the industry’s priorities after months of conflicting lobbying, and comes just two months before Britain plans EU divorce talks.
Until now, finance organizations have clashed over who should be leading efforts to lobby the government and what their Brexit response should be.
After the June vote, business leaders begged for Britain to stay inside the single market, for example, by having a Norway-style deal that would provide full access to Europe’s markets.
But EU leaders have repeatedly warned that single market access is defined by the bloc’s four freedoms — free movement of goods, capital, services and people — and that they cannot be unpicked.
Prime Minister Theresa May said on Sunday she was not interested in Britain keeping “bits” of its EU membership, seen by some as a signal that Britain will leave the single market when it leaves the European Union.
Britain should seek “access to the widest possible range of financial and related professional products and services,” the TheCityUK document says, implying some sectors may lose access under any final deal.
TheCityUK proposals call for “clear and upfront transitional arrangements” to bridge the gap between leaving the EU and the start of a bespoke deal, though they do not specify a timeframe.
Three top financiers, HSBC Chairman Douglas Flint (HSBA.L), London Stock Exchange CEO Xavier Rolet (LSE.L), and Allianz Global Investors Vice Chair Elizabeth Corley (ALVG.DE), called on Tuesday for transitional arrangements to last two to three years after Brexit.
Trade experts have warned that a bespoke trade deal could take far longer. Brexit supporters want a quick break with the bloc.
TheCityUK document favors a deal that would build on and go beyond existing so-called equivalence regimes, whereby UK financial firms could continue to serve European customers if they complied with rules the EU deems to be equal.
It said that for all products, a mutual recognition arrangement is needed, along with a framework for “recognizing and enforcing judgments from UK jurisdictions in the EU and vice versa.”
This refers to the derivatives sector, where currently swaps contracts negotiated between firms in all EU countries rely on UK court rulings to resolve disputes.
TheCityUK document also highlights some positive effects of leaving the EU, in a marked shift from the finance industry’s long-held view that staying an EU member would be the preferred option.
“There will be opportunities arising from Brexit, including from new networks of trade and investment agreements, the creation of Sharia-compliant central bank liquidity facilities and FinTech,” the document said.