London and Frankfurt will lose out to New York and Singapore unless a free trade deal on financial services after Brexit is agreed, according to leading City businesses.
The report from key banks, law firms and fund managers in the UK proposes a “bespoke” free trade agreement once Britain leaves the EU.
Such a deal would allow British and EU-based financial companies to sell their products and services without tariffs, taxes or quotas in each other’s markets after Brexit. A new joint “dispute resolution body” made up of judges and independent experts would rule on breaches of the agreement.
There have been warnings of the dire effects on British pensioners and other consumers living in the EU if “passporting” rights, which allow UK financial companies to trade freely in the single market, are lost when Britain leaves the EU. UK businesses might not be legally able to pay out personal pension or insurance contracts to British expats and other citizens living in the EU.
Potential solutions to those problems have been drawn up by the International Regulatory Strategy Group, which is sponsored by the City of London Corporation and the lobbying body TheCityUK. Taking soundings from institutions such as JP Morgan and BlackRock, it has produced a plan for a free trade agreement.
The report was launched in Brussels by the chair of the ISRG council, Mark Hoban, a former City minister, who said it would be “straightforward” to set up the free trade area because the EU and UK have regulatory regimes that are “essentially the same”.
“It’s an ambitious plan, but it is one that will benefit the entire continent. If London were to lose its crown as the world’s leading financial hub, activity will move to centres such as New York or Singapore, not elsewhere in the EU, and businesses and families would lose the benefits of deep and integrated financial markets.”
Rachel Kent, a partner at the law firm Hogan Lovells and one of the authors of the report, said the proposal mirrored the free trade area agreement between Canada and the EU, which envisages giving financial companies mutual access to each other’s markets in the future.
“The starting point for this report is that both the EU and the UK have, in their own ways, expressed the desire to secure future arrangements for free trade in financial services. An enhanced FTA [free trade agreement] as proposed by the report is technically and legally entirely feasible, and would properly form a financial services ‘chapter’ of a wider EU-UK agreement,” she said.
The proposal includes a forum of regulators that would come up with a joint regulatory response when new global standards need to be implemented. It would also be involved in supervision and enforcement, and would meet frequently.
Hoban said the 95-page report was the “first substantive piece of work done by any sector”. The model could be applied to other highly regulated industries such as pharmaceuticals and aviation, he added.