The passporting debate is in full swing but the outcome differs depending on what part of financial services you operate in. It depends for a start on whether you’re retail or wholesale. Unfortunately for retail payments, losing passporting rights is not good news.
At the first in a series of House of Lords EU Financial Affairs Sub-committees, Professor Eilis Ferran, Professor of Company & Securities Law, Cambridge University outlined the most important priorities for the UK’s financial services sector.
1) Replicating current EU arrangements- partly through equivalence, partly through bespoke provisons in exit terms- ASAP to avoid a ‘cliff edge’ scenario so that businesses can plan;
2) UK and ROW access to international markets via EU brokered access arrangements- these need to be preserved and protected.
Those who argue equivalence will be reached easily across the board are likely not drilling deep enough to distinguish retail from wholesale. MIFID and MIFIR cover the latter but not retail. It took the US three years of negotiations., however, given the UK has equivalence at present, one would hope it will not take too long to work out.
Ferran also said we need to think about future proofing, citing the Swiss EU relationship as being very tiresome and bureaucratic, having to renegotiate every time something changes. And in payments, things change all the time. A bit of foresight regarding mechanisms in the future is required.
Another critical factor is securing the EU talent pool we curently access; about 11% of the 360,000 people who work in City are from EU member states. As Professor Charles Bean, Professor of Economics, London School of Economics put it,
“Access to this skilled labour to be seriously impaired would impinge on London’s actions so a lot depends on the nature of controls on migration taking place.”
The key to everything is to have a plan in place. Reference to a cliff edge by Professor Ferran is not the only one of its kind being bandied about at the moment. Companies, large and small, feel like they are hurtling towards the unknown.
Ian Blackford, who proposed the motion to call a second UK referendum in the parliamentary debate on 5 September put it rather curtly in saying ‘it is a mark of irresponsible government that more than two months after the referendum we know nothing more than the prime minister’s soundbite that Brexit means Brexit’.
Indeed, throughout the debate, adjectives such as haphazard, fanciful and wishful thinking were used to describe the approach, or distinct lack thereof, post-referendum in clarifying the UK’s position, intention and the consequences of leaving the EU.
Professor Bean is right in saying it’s easy to think the handling of Brexit is the only thing that matters with regards the profitability of the financial services sector. It depends as much if not more on points such as increasing trade in Asia and the ever burgeoning fintech landscape.
However, Ferran is also right in saying one of the things that makes the UK and London a financial hub is the certainty of the legal system and this is now of critical concern as it is so uncertain. Whatever its longterm intentions, the government could do with putting some steps in place for everyone’s sake, pronto.