Financial services companies based in the UK are compelled by Brexit to work with government to stave off the very real threat of reduced access to the single market. But they also need to think about their contingency plans: managing the issues of staff relocation and articulating a confident vision for success in the changed environment.
Uncertainty is a business cost. The first priority – to be actioned now – is to press upon government the importance of obtaining a consensus on the known unknowns: the policy issues to be resolved and the process for determining their resolution.
Top of the list is ensuring that those companies who base in the UK in order to do business in the EU – so-called “passporting” within the single market – won’t find access to those markets denied when the UK leaves.
This is a real threat to a substantial volume of business (remember, unlike in goods we have a trade surplus in financial services with the EU) yet there is hope in the form of a suggestion in the current Mifid directive that countries outside the EU could have passporting rights if they can demonstrate regulatory “equivalence” in their domestic markets.
Working out what this means in practice, how it relates to the current pipeline of EU regulations and directives, and whether it can be considered without prejudice to broader political conversations around single market access, is a top priority.
To this end, larger companies should consider if they can exert direct pressure on other EU governments to avoid this being seen as a zero-sum game where it’s the UK asking for a “concession” to be “traded” against other issues in the exit negotiation.
Other known unknowns include whether euro-denominated derivative trades can continue to be cleared through London: an attempt by the ECB to restrict these to the euro-area was quashed by the courts last year on single market grounds: will this continue to apply with the UK outside the EU? Clarification will also be needed on the status of all contracts that are based in EU, rather than UK, law.
There’s also a risk that contingency plans themselves will make matters worse; shifting staff now, for example, may compound the sense of unease if handled badly. TheCityUK responded this week by sketching out the sector’s opportunities – as well as the threats; companies should also press government to demonstrate how it can help translate this vision into reality.
Kitty Ussher is Portland’s Chief Economic Adviser. She was City minister in the Treasury from 2007-08 and is also Managing Director of Tooley Street Research and a member of the Financial Services Consumer Panel.