A City of London delegation will depart to Brussels this week to press for a free-trade deal on financial services, due to rising concerns about the damage facing employers if they are forced to move operations out of the City. Mark Hoban, the former City minister, leads this initiative independently of government, highlighting that financial services are fearful of leaving their fate in the hands of official UK negotiators.
London has been routinely used by financial services companies as an EU hub. Such companies have relied on the ‘passporting’ principle in single market legislation to sell their services cross-border from the City. Business leaders are growing increasingly anxious that the UK will fail to obtain a credible deal to retain easy access to EU markets, prior to the March 2019 deadline for the UK’s departure from the EU. Consequently, banks are fearful that they may have to shift thousands of staff to financial centres in the EU; Frankfurt is touted as one of the obvious candidates to welcome such staff.
Research for the Association of Financial Markets in Europe was recently conducted to ascertain detailed estimates of the cost to banks if no mutual market access is established. It found that UK-based banks would face €15 billion of restructuring expenses and up to €40 billion of extra tier one capital requirements. With this in mind, Mr Hoban’s plan is based on the principle of ‘mutual access’ – allowing financial groups from the UK and the remaining 27 member states to operate in each other’s markets without barriers if the UK leaves the single market. It would also involve shared regulatory supervision and joint dispute resolution. Furthermore, people familiar with the plan told the Financial Times that a ‘break clause’ would allow either side to suspend the arrangement in certain extreme circumstances.