Hammond and EU at odds over financial services future

Financial sector services remain at the centre of debate between the UK and the EU, following speeches from both sides reflecting differing approaches to future Brexit negotiations.

City of London
Two very different approaches to future Brexit negotiations emerged as senior figures involved in the talks outlined their positions in London and Brussels.

Future of Britain’s financial services sector

On the UK side, Chancellor of the Exchequer Philip Hammond told the EU that a trade deal that would include Britain’s financial services sector was in the “mutual interest” of both the UK and the remaining members of the bloc.Meanwhile, in Brussels, Donald Tusk, president of the European Council, launched the draft guidelines for future negotiations and insisted that the EU would not allow full single market access on a sector-by-sector basis.However, the draft document, which will now undergo revisions by the 27 remaining EU countries, does hold out the possibility of a deal covering trade in services, but adds that this would have to be “consistent with the fact that the UK will become a third country and the (European) Union and the UK will no longer share a common regulatory, supervisor, enforcement and judiciary framework”.
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Potential of bank relocations to European financial hubs

In his speech, Mr Hammond, who remains anxious about the likelihood of banks and other financial institutions relocating from London to new hubs in other European cities after Brexit, said the “deeply interconnected” nature of the EU and UK economies meant businesses and individuals had become dependent on cross-border financial services.“Our markets are already deeply interconnected and we have demonstrated how we can work together over the past decade as we have repaired and defended the financial stability of our continent,” he said.“So I am clear not only that it is possible to include financial services within a trade deal but that it is very much in our mutual interest to do so.“A trade deal between the UK and the EU must start from the reality of today – that our economies, including in financial services, are interconnected; that our regulatory frameworks are identical; and that our businesses and citizens depend on cross-border financial services trade in their day-to-day lives.”

EU’s approach to Brexit talks

Mr Hammond’s speech came after Bruno Le Maire, the French economy minister, became the latest European politician to rule out Britain’s financial services being included in a free trade agreement.“We need a good deal. But once again we have to avoid any misunderstanding between the British people and the French people, between the UK and the EU,” he told BBC Radio 4’s Today programme. “Financial services cannot be in a free trade agreement, for many reasons – for reasons of stability, for the sake of supervision because there are some very specific rules for financial services.“So financial services cannot be in a free trade agreement, but we have an alternative system which is called the equivalence regime.”However, the UK government regards ‘equivalence’ as wholly inadequate as it is limited in scope and can be rescinded at 30 days’ notice. Mr Hammond made it clear that any deal that did not embrace financial services would be unfair as the EU enjoys a sizeable trade surplus in goods with the UK.The chancellor also repeated his warning that it would be financial centres such as New York and Hong Kong that would benefit from any moves by EU cities to undermine London’s position as a prime global hub.

The pick-and-mix question

In Brussels, Mr Tusk said that “a pick-and-mix approach for a non-member state is out of the question. We are not going to sacrifice these principles. It’s simply not in our interest” – a reference to the UK’s desire for access to the single market in some sectors, but divergence in others.“No member state is free to pick only those sectors of the single market it likes, nor to accept the role of the ECJ only when it suits their interests,” said Mr Tusk.“One thing must be absolutely clear, and I’m not sure that we are on the same position here: there is no possibility to have some sort of exclusive single market for some part of our economies. And I hope that during our negotiations and debate among 27 EU leaders that we will make this position more clear for our partners in London.”Stephen Jones, chief executive of UK Finance, the trade body of Britain’s financial services sector, said, “Thousands of customers and businesses in Europe rely on access to financial services from the UK. It is in everyone’s interests for this vital cross-border trade to continue.”
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