Relocating banks ‘could not match London’s advantages’ – Hammond

In a speech to a Commons committee, Phillip Hammond has argued that London offers more for businesses than relocation to another European financial hub after Brexit.

Phillip Hammond
The complex infrastructure of the global financial services industry based in London could not be “relocated or replicated” by companies moving offices and staff to other EU cities post-Brexit, Chancellor of the Exchequer Philip Hammond has told a Commons committee.

The question of UK financial services

He told the all-party European Scrutiny Committee that a trade agreement with the EU that omits the UK’s financial services sector would not be credible.But even as Mr Hammond was speaking, the principal adviser to Michel Barnier, the EU’s chief negotiator, was telling an audience at the London School of Economics (LSE) that Britain would struggle to get a Brexit deal with the bloc that included financial services.With several major, London-based banks and insurance companies already moving towards establishing new European hubs in cities such as Frankfurt, Dublin, Paris and Luxembourg, Prime Minister Theresa May insisted in a keynote speech on Friday that she expected Britain and the EU to continue to access each other’s financial markets after Brexit on the basis of maintaining the same “regulatory outcomes”.
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Cost of relocation to Europe

Mr Hammond told MPs that relocating firms would face significant costs and would find it impossible to match the facilities offered by the City of London.Asked about suggestions that a post-Brexit UK would be treated under the limited ‘equivalence’ arrangements covering other non-EU financial services, the chancellor said, “I don’t think it is credible. I don’t think it reflects the real world in which we live.”Mr Hammond, who is expected to detail a plan for ‘mutual recognition’ between financial services across Europe in a speech on Wednesday, added, “The scale of the UK-based financial services sector and the deep involvement it has in the operation of the real economy in the EU...I don’t think it is in anybody’s interest to sever that link in key areas.“The UK financial services infrastructure, the critical mass that we have in several key areas, simply can’t be relocated or replicated. It is a very complex eco-system, it has grown up rather than being created, and it would be a very, very bold move indeed to fragment it.“That would undoubtedly have very significant costs to all the clients and users of these services. I don’t think it is a credible scenario.“Any deal has to be fair and attractive to both sides. Given the shape of the UK economy, so heavily biased towards services, I find it difficult to envisage what a deal would look like that was fair and attractive to the UK that didn’t involve access for services.”

Britain’s position after Brexit

But Stefaan de Rynck, Mr Barnier’s senior adviser, said that the EU had increasingly moved away from a system of mutual recognition since the financial crash 10 years ago.He said in his LSE speech, “We have moved away from mutual recognition of national standards to a centralised approach with a single European Union rule book with common enforcement structures. If you are in a very integrated market but you don’t have the joint enforcement structures then you can see the potential for all kinds of difficulties.”Mr de Rynck also said there was little precedent for third parties to secure participation in key EU agencies, such as the European Medical Agency – one of Mrs May’s goals set out in last week’s speech.
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