One of the key areas of uncertainty post-Brexit is over the future of the City of London, which could see its access to European markets reduced. The UK and EU formed a new post-Brexit financial services agreement last week, according to reports, but it appears to be a bare bones accord. A copy of the pact, yet to be formally released, says both sides will “jointly endeavour to pursue a robust and ambitious bilateral regulatory cooperation” by meeting twice-a-year. Prime Minister Boris Johnson’s Brexit trade deal did not deliver an agreement on financial services, and the UK could be set for intense talks.
However, it has also been reported that the UK is preparing a wide-ranging review of financial markets to defend the City of London’s global pre-eminence after Brexit.
Economic Secretary to the Treasury, John Glen, told Bloomberg last month that preparations to consult businesses on “detailed proposals for wider reform to the capital markets” would start.
He added the review will look at changes to market structure, transparency rules, as well as commodities to try and reduce costs and burdens for firms while maintaining high standards of regulation.
Bloomberg reported that the plan aimed to give the City of London a “Brexit edge”.
The EU has refused to grant UK finance full equivalence, and if the City of London undergoes substantial changes, Brussels and London could yet stray further from each others’ standards.
Mr Glen said: “What’s really important is that we maintain the competitiveness of London, as a global hub for financial services and we look very carefully at all dimensions of what that means.”
When it came to acting on the findings of the review, Mr Glen added: “We are very much in active listening mode. And poised to respond.”
An international study released last month said that London has held on to its spot as the second financial centre in the world despite Brexit.
London sits behind only New York and remains Europe’s only major global financial centre, remaining a number of spots ahead of Frankfurt and Zurich.
But Asian competitors Shanghai, Hong Kong and Singapore are closing in on the capital.
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Catherine McGuinness, policy chair at the City of London Corporation, reacted to the study: “Our financial services sector has demonstrated resilience over the past year, providing stability amid considerable economic uncertainty. We remain confident in the City’s future and our long-term fundamentals.
“But we cannot afford to rest on our laurels. It is vital that policymakers focus on the UK’s competitiveness, by investing in infrastructure and skills across the country.”
This came after Amsterdam overtook London as Europe’s biggest share trading centre in January.
While much was made of London losing its crown, Amsterdam is still a relative minnow placing 28th in Z/Yen’s Global Financial Centres Index.
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Miles Celic, chief executive of financial services group TheCityUK, and Nick Collier, the City of London Corporation’s representative in Brussels, told the House of Lords in January that the EU’s financial services policy was actually being driven by political objectives, not concern over regulation.
They warned that EU officials could use so called “equivalence” rulings to drive business out of Britain and into the EU, and that the tool could also be exploited to pressure Britain to follow EU rules on financial services.
Mr Colliers said it was “absurd” for the EU not to grant equivalence rulings, adding: “There isn’t really a technical case for not granting it, it’s really a political case.”