A disorderly exit from the EU would damage financial services, the UK’s top money-spinner. It could result in the loss of £38 billion of income, up to £10 billion of tax revenue and 75,000 jobs, according to a new report for The CityUK by consultants Oliver Wyman.
But this will not be the only risk. Hard Brexit could also threaten financial stability. It is no accident that a second unpublished report from the British Bankers Association (BBA), prepared by lawyers Clifford Chance and consultants Global Council, is entitled “UK exit from the EU: an orderly transition for banking.”
A disorderly hard Brexit is likely to create uncertainty and undermine financial market confidence, raise new regulatory barriers, and disrupt banks services to their clients. It would, therefore, be high risk. Just the “potential disruption of services provided by banks” could hit “financial stability…. jobs and growth” more generally.
The BBA report argues that the best option for the City is that the UK requests continued membership of the European Economic Area (EEA). Under this option the UK could retain membership to the EU’s single market and so “access to the passporting regime for cross border financial services trade… the essence of open trade in financial services in the EU.”
An alternative, second best, strategy would be for the UK to opt for “third country” status and seek to negotiate what the BBA describes as “a uniquely ambitious” bilateral trade agreement
But this would only “limit some of the damage” the UK would suffer from adopting “third country” status. It would weaken the UK’s hitherto strong position as an EU member to shape financial market rules in the EU and at the same time require it to maintain a close relationship with EU financial market authorities, including the European Central Bank. The UK would, as with the EEA option, become essentially a rule taker, not a rule maker.
Even the transition out of the EU promises to be difficult, the BBA report warns. It will, for example, involve the British government “reviewing the body of UK law and regulation on financial services” to decide whether to “retain, revise or revoke provisions.. based on EU legislation.” One possible outcome is that parliament may face having to enact new legislation too, which might not be politically straightforward.
Moreover, the EU is unprepared to negotiate trade deals in many of the commercially and systemically important financial sector cross-border activities London based firms engage in, including payments and settlement systems. It does not have “third country” legal, regulatory and supervisory authority models in place.
Because of the tight, two year deadline to complete the UK’s Article 50 exit negotiations, to avoid a dangerous hiatus in business activity the UK will have to negotiate separate transition agreements, according to the report. Indeed, the government wants to negotiate such a trade deal to avoid a “cliff-edge” for the City, according to the FT contradicting an earlier Bloomberg report.
Such a deal may include paying a single market access fee to Brussels. It could also mean we have to commit to updating relevant new EU financial market rules and regulations and to maintaining close, on-going relationships with EU institutions engaged in financial market oversight, including the European Commission and the European Securities and Markets Authority. This is not what advocates of a “hard Brexit”, who seem to be in the ascendancy, have in mind.
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Edited by Hugo Dixon
the BBA commissioned law firm Clifford Chance for a report ?
the very same firm that was asked by the Conservative Party to whitewash its leadership from any manslaughter responsibilities following the tragic death by harassment of Tory activist Johnston
that tells me a lot about the rotten nature of the english establishment, both in the political and economic spheres !!
It seems our leaders are determined that the nation should, in the interests of Tory Party unity, commit financial suicide.
By now it is clear that the present government appears scared of violence from “hard-line Brexiteers”, whoever they are. Given also that leaving the EU on the UK ambitions re foreigners and their access to the UK (or what is left of it) cannot be squared with the desired access to the EU market facilities, and given that it is unlikely that the UK government actually has people of the necessary quality available to negotiate anything decent with the EU at all, a hard Brexit really is the only option left. Anything else looks too much like being a second rate associate of the EU without any of the influence the UK once had. Whatever soft-Brexit will be negotiated, it is always going to be less than what the UK had as a fully paid-up member, whilst among Brexiteers the needs of trade, industry and education never appeared to play an important role anyway. Brace Brace Brace!