A white paper published by the UK government outlining its preferred post-Brexit trading relationship with the European Union has been widely criticised by financial services industry groups.
As expected, the UK will ask the EU for an ‘association agreement’ which will include a free-trade area for goods but exclude services, which make up 80% of the UK’s economy.
Less expected was the announcement that the UK government would not be pursuing its previously promoted mutual recognition plan for regulatory regimes – which has already been dismissed by Brussels as cherry picking the single market.
Instead access would, under the UK government’s new plan, be built on improving the EU’s current equivalency arrangements for third countries – arrangements that have been criticised for not providing sufficient stability as they can be revoked at any time by the EU with just 30 days’ notice.
The only parts of the white paper likely to be welcomed by financial services companies are UK government proposals to maintain free-flowing data, the mutual recognition of qualifications and free movement for skilled workers across the EU.
The policy chairperson of the City of London Corporation Catherine McGuinness said that the long-awaited white paper was “a real blow” for the UK’s financial services industry.
“With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy,” she said. “It’s that simple.
“The sector has been clear since the referendum: equivalence in its current form is not fit for purpose so any enhancements to this regime would have to be substantial.
“It is in the interests of households and businesses on both sides of the Channel that an ambitious future trading relationship, covering services as well as goods, is secured.
“Failing to secure such a deal would put up unnecessary trade barriers and runs the risk of fragmentation of financial markets, increasing costs and reducing choice for consumers.
Miles Celic, chief executive of the TheCityUK, said it was “regrettable and frustrating” that mutual recognition had been dropped before even making it to the negotiating table.
“The overriding issue for financial and related professional services firms is the ability to continue serving customers and clients. Mutual recognition would have been the best way to achieve this.
“Brexit was always going to result in access to the EU market being more difficult. Therefore, an effective and secure future regulatory relationship is vital.
“It is now urgent that we make rapid progress on the negotiations, both around the future relationship and on immediate issues for customers such as contract continuity.”
The chief executive of UK Finance Stephen Jones said that relying on third-country equivalence arrangements will not provide financial institutions with sufficient market access to allow them to serve their customers.
“Given the limited time available it is vital that both the UK and EU27 negotiators come to the table and focus on ensuring a legally enforceable agreement, delivering enhanced and expanded third-country arrangements that enables meaningful cross-border market access in financial services.”
Chris Cummings, chief executive of the Investment Association said he was disappointed that the UK government has ruled out mutual recognition as its preferred option.
“We believe that a solution based on enhanced-equivalence can deliver a deal that works for savers in the UK and across Europe, and for the asset management industry that supports them,” he said.
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