Admittedly, things have got a bit more complicated since last spring. In principle, the government had already declared in its 2018 Political Declaration that it aimed to build a more robust and transparent “equivalence plus” regime. (I’m quoting from the Brexit and Financial Services Commons briefing here. https://researchbriefings. parliament.uk/ResearchBriefing/Summary/CBP-7628)
But it all went wrong: “New institutional arrangements would have supported the approach,” the Commons report says. “But the details would only have been identified and negotiated after the Withdrawal Agreement was ratified. The October 2019 Political Declaration [however] gave less emphasis overall to close alignment, although the financial services text was identical.”
Unfortunately, another good intention got lost by the wayside at about the same time. Under the Financial Services (Implementation of Legislation) Bill 2017 we know that Britain’s continued membership of the European passporting system was never even remotely on the negotiating table, because it’s an integral part of the European Single Market, which we are absolutely, definitively leaving – as distinct from the European customs union, which we are only “probably” leaving 2019, the government would have been committed to maintaining the necessary standards for equivalence for at least two years after an eventual Brexit; but the bill was automatically lost at the end of the last parliamentary session, and, according to the Commons briefing, “maintaining alignment with the EU after Brexit will [now] require new primary legislation.”
Which will be only one of many reasons why Brussels is currently looking askance at Boris’s assertion that he can negotiate the whole damn withdrawal by 31st December 2020, and that if he can’t, then Britain will leave the EU with no deal.
Hmmmm. To quote the Commons briefing again: “A no-deal Brexit would make the quest for equivalence more difficult. The UK would revert to third-country status”
“Both parties have made some provision for such a scenario to help ensure some continuity,” it adds. “The UK has developed a temporary permissions regime to allow EEA-based businesses to continue to operate in the UK and to seek more permanent authorisation from the Financial Conduct Authority. The EU has agreed and extended a temporary recognition regime for the derivatives market.”
Theory Vs Practice
For what it’s worth, I’d say that London ought to have little difficulty in meeting the requirements of equivalence. UK financial services are streets ahead of the MiFID II standards; indeed, our very own Retail Distribution Review (2013) formed a template for a significant part of the new Brussels rules. Quite an eye opener for those of us who can still recall the days when small Italian investors existed to be fleeced by the big boys, and when Germany still allowed insider trading. (It was finally banned only in 1994.) Even today, there are plenty of eastern fringe member states where controls are (ahem) not very rigorously applied and where questions are not asked.
We ought to walk it, then. But if we think that equivalence is our right, maybe we should consider the recent kerfuffle with Switzerland. Last July, without much warning, Brussels abruptly withdrew the rights of EU institutions to trade in the shares of Swiss companies and funds – thus effectively casting them adrift. (Specifically, it allowed the previouslyrecognised equivalence status of the Swiss stock exchange to lapse.)
The key article of faith, for hard Brexiteers at least, is that a Britain free of the EU’s shackles will be free to negotiate its own deals on mutually-agreed terms that don’t carry an unwieldy overload of European regulations
Brussels had been accusing Berne for some time of dragging its heels in the implementation of various bilateral agreements relating to regulatory convergence; Switzerland’s stock market chief Jos Dijsselhof could only retort, in response, that the EU had resorted to a dirty political trick which amounted to holding his country hostage, so as to force the overall framework agreement. He went on to say that the UK was now going to get the same hard treatment as his compatriots. So was that pique
or perspicacity? And can we expect to get gentler treatment than the secretive gnomes of Zurich?
Mr Dijsselhof was probably just blustering when he declared, brightly, that Brussels had in fact scored an own goal by suspending the EU-wide eligibility of Swiss shares, because he said it had boosted Berne’s domestic share trading volume by 30%. That might sound as though it ought to be music to Boris’s ears, but not so fast. It ignores the fact that London is the overwhelmingly dominant place where 40% of all EU assets are traded, and it would be a crying shame to lose that dominance. The exact inverse of Berne’s problem, then.
Heading For The Sunlit Uplands
Back to the drawing board, then? Not exactly. The key article of faith, for hard Brexiteers at least, is that a Britain free of the EU’s shackles will be free to negotiate its own deals on mutually-agreed terms that don’t carry an unwieldy overload of European regulations. And that its advanced tradition of light but effective supervision (take a bow, Margaret Thatcher) has placed London in an unassailable position.
I for one have my doubts, not least because Mr Johnson’s eyes are firmly on the United States, where Wall Street is already spitting teeth about London’s dominance, and it would probably be glad of any possible opportunity to rein it in a little. Small wonder, perhaps, that so many UK institutions are preparing their parachute operations in readiness for (a) a Brexit with a deal or (b) the same with no deal.
How many? Sources differ, but they all seem to be agreed that the race to deploy the parachutes is slowing down. The latest EY summary said in September that 92 of the 222 firms it had surveyed had publicly announced their plans to open bases in Ireland or the mainland EU. Another updated report from New Financial insisted in October, however, that 332 firms had already moved at least some jobs abroad – with Dublin and Luxembourg leading the way, and with Paris running a strong third. (But Frankfurt some distance behind.) Insofar as there’s a pattern, US institutions (Citi, Blackrock, JP Morgan, Bank of America) are showing a preference for Paris over Frankfurt, at least for banking business, while Dublin is picking up a strong showing among their asset management divisions.
