Seven months on from the referendum, and – unsurprisingly – discussions over the UK’s withdrawal from the EU are proving to be complex and controversial in equal measure. In two months’ time, Theresa May will have triggered Article 50. The “phoney war” will be over and negotiations will begin in earnest.
For those of us who want to make sure that the final deal is as progressive as possible, and reflects the needs of a wide range of British businesses and citizens – and not just a chosen few vested interests – now is the time to be setting out priorities and red lines.
As a member of the European Parliament’s Committee on Economic and Monetary Affairs, I have been following developments regarding the future of financial services. To help contribute to that debate, today I am setting out my thoughts on how we can use the Brexit talks to secure a New Deal for financial services.
Securing such a deal will not be easy. If Brexit itself is a controversial subject, adding in the financial services sector – with all the residual, justified anger stemming from the 2008 crash – only makes things more charged and complicated.
It is all too easy to imagine a vicious circle developing. The UK government, as per Theresa May’s Lancaster House speech, has already threatened to undercut our European neighbours and deregulate its way out of the EU. Our European neighbours could respond by trying to “punish” the UK and grab pieces of the City’s operations for themselves. The financial services industry, for its part, could decide to play one side off against the other in the hope of creating new loopholes.
Going down that route would be a sure-fire way of damaging Britain and Europe in equal measure. Like it or not, the UK’s financial services industry is of vital importance to our economy – accounting for a tenth of our economic output and generating £66bn in tax revenues. It also powers much of the wider European economy, with UK banks providing £1.1 trillion of loans to the EU, financing businesses and households across the continent.
If negotiations descend into each side trying to steal business from the other, neither will win. The most likely beneficiary would be New York, which would attract firms fed up with the uncertain environment created in Europe.
Yet if there is the political will on both sides, a deal can be reached that benefits everyone and allows the financing of British and European businesses to continue with as little disruption as possible. This is at the heart of my three-pronged New Deal for financial services.
First, we need to reach early agreement on the treatment of the UK in relation to some of the biggest pieces of financial services legislation. Much of this legislation already has arrangements in place for non-EU countries. If their rules are deemed to be “equivalent” to those of the EU, then firms in those countries can access EU markets. The UK, having been compliant with all such legislation up until the point of its departure, should automatically be deemed equivalent to the EU.
Second, we must consider those areas of EU legislation where such “equivalence” provisions do not exist. In areas where the UK’s departure is likely to cause significant disruptions and damage to businesses on both sides of the Channel, we must work to create new equivalence arrangements before the UK leaves. Again, this will minimise the negative effects of the UK’s withdrawal.
Third, we need to look to the future and the drafting of new rules. Whatever the terms of the wider EU-UK deal, the two jurisdictions will remain incredibly close to one another. New rules drawn up on one side are bound to impact the other. The best way of mitigating the risks of damaging market access, or of inadvertently creating loopholes, is to establish a formal process of cooperation between the UK and the EU: an EU-UK Financial Markets Regulatory Dialogue. Such an arrangement already exists with the US, and we can learn from what has and hasn’t worked there.
If we can approach the negotiations in a positive frame of mind, and address each of these three elements, we can minimise the negative impacts of Brexit on financial services, maximise the opportunities for UK and EU businesses to continue trading with one another, and stop a deregulatory “race to the bottom”.
Anneliese Dodds is the Labour MEP for South East England and a member of the European Parliament’s Committee on Economic and Monetary Affairs.