A regulatory advisory group — sponsored by the City of London Corporation and TheCityUK — has hatched a plan for the UK to retain EU market access post-Brexit.
The International Regulatory Strategy Group reckons the UK and the European Union could agree a bespoke, reciprocal market access deal for financial and professional services after the UK leaves the trading bloc in 2019.
In a paper titled Mutual recognition – a basis for Market Access after Brexit the group proposes a joint committee that ensures regulations stay aligned and lays out ways to resolve disputes within a free trade agreement that covers financial services.
The report suggests the UK and the EU use global regulatory standards, including those set by the Basel Committee on Banking Standards, International Organisation of Securities Commissions (IOSCO) and the Financial Stability Board (FSB).
A joint UK-EU committee or forum could be established to make sure that regulation and principles of supervision are monitored as they evolve over time and consult on new legislation before it is brought in.
Disputes between the UK and EU should be either handled by existing models in free trade agreements or an entirely new model could be developed, referring issues to a new independent panel of experts predominantly from outside the UK and EU.
Mark Hoban, chairman of the International Regulatory Strategy Group, said:
“To minimise disruption and unnecessary cost for customers, the financial and professional services sector has been calling for a bespoke agreement to support the freest possible trade between the UK and the EU post-Brexit. This is why we support the prime minister’s call for a bold and ambitious free trade deal. This report fleshes out how this ambitious deal could be structured to provide a robust framework for continued cross border trade. There are no easy solutions here but if the goal is to avoid fragmentation and maintain deep and liquid financial markets which benefit customers, then the UK and the EU will need to work together constructively to strike the right deal.”
The Bank of England wants to hear from the industry
Bank of England governor Mark Carney earlier this month warned Brexit was a “fork in the road” for the global financial system, and outlined measures to protect the UK economy against the impact of the UK’s vote to quit the EU.
In a speech given at Thomson Reuters in London, the governor said that all banks with cross-border activities between the UK and the rest of the EU have been asked to provide Threadneedle Street with written confirmation of “contingency plans” for Brexit by 14 July 2017.
While the UK will have the same regulatory structure as the EU on the day it leaves the bloc, the issue for the country is that as time passes and new challenges appear, the two frameworks will diverge.
This could prove problematic for so-called equivalency — if the European Commission deems the UK’s home rules and oversight of specific business lines to be equivalent to the EU’s.
Equivalency is granted by the commission and can be withdrawn at any time without appeal, making it more restrictive than so-called passporting, which is a right of membership of the bloc.