The House of Lords’ European Union Sub-Committee has published its report on Brexit and financial services. The report was prepared by the Sub-Committee on the basis of evidence sessions with nine panels of witnesses, in September, October and November 2016, as well as written evidence. The report has 5 chapters covering:
- financial services and the UK economy;
- passporting, equivalence and market access;
- the impact of the loss of passporting;
- beyond market access – free movement and FinTech; and
- the way forward (including planning and transition).
Commenting on the report, Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, said:
“The Government has a lot of work to do. First of all, it must, early in the negotiation process, agree a transitional period so as to prevent UK based financial services firms from restructuring or relocating on the basis of a ‘worst-case’ scenario. Last week, France’s leading financial regulator told the BBC that some major banks are in the advanced stages of planning to shift some operations from London to Paris.
“Second, it should go into negotiations with the strongest possible evidence base. It needs to determine as precisely as possible which firms currently rely on passporting and the degree to which equivalence provisions might provide a substitute. We found those provisions to be patchy, unreliable and vulnerable to political influence: the Government should seek to bolster them wherever possible.
“The EU should also carefully consider the findings of this report. EU firms rely on the services provided in the UK, and pain caused to the UK’s financial sector will not be the EU’s gain, but New York’s.” “We are in danger of a lose-lose scenario if pragmatism does not prevail.”
In terms of a key priority the report states:
“We find that a key priority will be to ensure that there is an adequate transition period, avoiding a ‘cliff edge’ both at the moment of withdrawal following the Article 50 process and as the UK and the EU move towards a new relationship. It will of course be in the interests of businesses to be able to plan for the future on a firm footing, but we believe that achieving such clarity will also assist regulators in adapting to new circumstances, the wider economy and the European economy as whole. The danger is that, in the absence of clarity, firms will restructure or relocate on the basis of a ‘worst case’ scenario. We call for an early commitment from both sides in the negotiation that there will be a transition period.”
View Transitional period for financial services vital following Brexit, 15 December 2016