Financial services are crucial to making Brexit a success – but the City must not become Brussels' rule-taker
As negotiators convene to hammer out a trading relationship between Britain and the EU, the next 10 or 11 months will prove crucial in securing a deal. Financial services will need to feature heavily in these discussions.
With three quarters of UK household relying on the investment management industry to provide for their future, it is crucial that this deal meets the needs of these millions of savers, including pensioners across the country. The UK also looks after £1.8 trillion of European savers’ money, so we know that it is also in the interests of European negotiators to get this right.
Of course, no ‘off the shelf’ model will be able to fully replicate the Single Market passport. Yet, we need to ensure that our industry can continue to seamlessly manage savers’ money across Europe. This is why we need to retain a close economic relationship between the UK and EU on financial services.
Our ability to offer savers the most extensive range investment products relies on reliable market access. Today, more than 10,000 different funds are offered to UK investors and of these 7,200 are based elsewhere in Europe, with the UK providing portfolio management expertise for most of these. This seamless market access also keeps costs for utilising services and market infrastructure in other markets low for UK savers and investors.
The UK government and EU urgently need to provide greater confidence about these access arrangements. The current process by which the EU gives access to its financial markets, called equivalence, is not fit for purpose. Switzerland’s loss of equivalence last year offers a cautionary tale. That’s why we are calling for a clear process for equivalence assessment, which is based on deep supervisory cooperation between the FCA and European regulators.
Market access, however, should not come at the cost of being a rule-taker. As Europe’s largest investment management centre and second-largest globally, we should not be subject to rules we have not had a meaningful role in shaping. The establishment of a joint UK-EU financial services committee would provide a solution to institutionalise rulemaking, while respecting each other’s freedom to regulate.
Looking further into the future beyond Brexit, the government will need to focus on keeping the UK internationally competitive, promoting inward investment, targeting deeper trade links with overseas markets, and encouraging global firms to operate from the UK. While Brexit represents a significant opportunity for the UK to cement its world-leading status as an investment management centre, this should not be done in a way which compromises our access to European markets and our ability to serve our customers.
As the clock ticks on this year's deadline to strike a deal, those who’ll be taking the negotiations forward should remember that the investment management and broader financial services industries have played an invaluable role in driving the prosperity of UK and European citizens. With the right framework, we can continue to do so in the years to come.
Originally published in The Telegraph