6 December 2017
Many in the City fear that Brexit means they must radically revamp their European business models.
They are planning their contingencies on that basis.
Their fear is the loss of the EU passport, which enables businesses in the UK to operate across the EU but be supervised solely in the UK, under pan-EU regulation.
Yet Brexit is less disruptive than might first appear. Many of the gloomy predictions ignore the fact that we can place some reliance on EU law.
There is an element of confirmation bias underlying the thinking. Bleak discussions confirm pre-existing beliefs as to the need for expensive no-deal contingencies.
There are in fact two attractive ways forward for financial services on Brexit.
The first – the preferred option – involves obtaining mutual access through recognising each other’s standards.
This is what the government is seeking. It could be achieved by the time of Brexit, through making minor enhancements to the existing EU concept of equivalence. UK businesses could then carry on operating across the EU, solely under the jurisdiction of the UK’s regulators.
This would be an improvement on the passporting regime, which has increasingly meant applying rules that diverge from the City’s needs as a global financial centre. Regulators’ efforts have been misdirected away from the key points onto prescriptive minutiae. Worse still, the UK has topped up EU regulation with gold plating.
Enhancing equivalence would enable the UK to regulate in a manner appropriate to it owns financial markets, achieving outcomes equivalent to those sought by the EU.
These would be based on international standards where they exist and mutually agreed high level standards where they do not.
Why would the EU agree to this? Because it would give its customers the cheapest possible access to the global markets on the EU’s doorstep, liberating citizens from otherwise unnecessary costs that would dampen EU growth.
To read Barney Reynolds’s piece for City A.M. in full, click here.