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The Chancellor’s speech on financial services

Simon Lovegrove

The Chancellor of the Exchequer, Philip Hammond, has made a speech on Brexit and financial services.

In his speech Mr Hammond states that the implementation period is expected to be formalised at the March European Council meeting. He warns that the implementation period is “essential” for a smooth pathway to a future partnership between the UK and the EU. He adds that nowhere will this be more important than in financial services, “where we must work together to avoid the potential risks to financial stability that could arise if we faced a cliff-edge in March 2019.”

Mr Hammond argues that financial services is an area where the UK and EU should collaborate closely. He also challenges the assertion that financial services cannot be part of a free trade agreement noting that “every trade deal the EU has ever done has been unique” and it has bespoke relationships with Turkey, Canada, Singapore and South Korea. He also mentions that the EU pursued ambitious financial services co-operation in its proposals for the Transatlantic Trade and Investment Partnership between the EU and the US and in its initial proposals for EU-Canada Comprehensive Economic and Trade Agreement (CETA). He also warns that by fragmenting London’s market the real beneficiaries would be New York, Singapore and Hong Kong rather than Paris or Frankfurt.

Mr Hammond states that a UK / EU partnership should enable the ongoing delivery of cross-border financial services in both directions while protecting financial stability and consumers, business and taxpayers across the UK and EU. Such a partnership should be based on:

  • a process for establishing regulatory requirements for cross-border trade between the UK and the EU. Cooperation arrangements that are reciprocal, reliable and that prioritise financial stability. Mr Hammond adds that, “the principle of mutual recognition and reciprocal equivalence, provided it is objectively assessed, with proper governance structures, dispute resolution mechanisms, and sensible notice periods to market participants clearly could provide an effective basis for such a partnership”;
  • a structured regulatory dialogue to discuss new rules proposed by either side which would build on the current regulatory relationship, ensuring equivalent regulatory outcomes and agreeing mutually acceptable rule-changes where possible;
  • where rules evolve differently there will need to be an objective process to determine whether they provide sufficiently equivalent regulatory outcomes including not only the rules themselves, but also an assessment of the way in which they are enforced;
  • continued close supervisory cooperation. While the UK would cease to be a part of the EU’s supervisory agencies, Mr Hammond sees that there is no reason why the UK / EU cannot maintain a very close working relationship;
  • in certain circumstances the UK may choose not to maintain equivalent outcomes and the future partnership needs to address how this would work with clear institutional processes to do so. The UK’s concern in a financial services partnership would be to ensure that the consequences of not maintaining equivalence were reasonable and proportionate, applied in a predictable way that allows industry to plan with confidence and that they are delivered through an independent arbitration mechanism that has the confidence of both parties. Mr Hammond adds that such mechanisms already exist within free trade agreements, including CETA.

View Chancellor’s HSBC speech: financial services, 7 March 2018

This briefing also features as a post on our Financial services blog: Regulation tomorrow.

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