The City of London faces negotiations on the future relationship with the European Union (EU) as a crucial moment that will define not only its level of access to the Community market, but its position as a global financial center.
British banks and insurers will lose from December the financial passport that allows them to operate without restrictions in the community block, a market that generates 25% of the benefits of the sector in the United Kingdom (about 50,000 million pounds or 59,900 million euros).
The British Government aspires to agree with the EU an equivalence regime that gives its firms as much access as possible to continental customers, although it has already advanced that it aspires to diverge in the future of community regulations.
Brussels fears that the City will become a competitor at the gates of Europe with laxer standards than those of the EU, which promises to generate friction between both sides of the English Channel.
Experts warn that eventual obstacles in the European business can impact the entire London financial ecosystem and trigger divestments of firms in the United Kingdom.
“A company that loses clients of the European Union could stop having the necessary scale to operate with benefits in the United Kingdom and leave the country completely,” warns a report by consultant Oliver Wyman.
– FINANCIAL PASSPORT AGAINST EQUIVALENCE
Financial services firms established in countries integrated in the single market only need the approval of their national regulator to operate and open subsidiaries in any State of the block, without additional licenses or authorizations.
With the withdrawal of the United Kingdom from the internal market, starting in 2021, access by British companies will be conditioned on European institutions accepting that British regulations conform to those of the EU.
“Obtaining equivalence is an uncertain process that can take a long time,” says PwC, which also warns that “there are factors outside the technical issues that may affect that equivalence, such as political and reciprocity issues.”
The European Commission (EC) reserves the right to unilaterally withdraw equivalence for firms from third countries if it considers that conditions have changed, which “can complicate the long-term planning” of British companies, adds PwC.
– THE CITY OF LONDON IN FIGURES
Financial services represent 3.5% of the UK labor market, 7.2% of the country’s economic activity and generate 11% of the taxes collected by the State.
The exit from the single market can lead to a “modest reduction” in activity if the EU guarantees access similar to that of the current financial passport, according to Oliver Wyman’s analysis.
In that case, the benefits generated by the British firms in the EU would decline by about 2,000 million pounds per year (2.3 billion euros), 2% of the profits coming from international clients, and 4,000 jobs would be at risk. job.
In a scenario where regulatory equivalence is not ensured and the bilateral relationship with the EU is based on the basic rules of the World Trade Organization (WTO), the activity of British firms in the Union would fall to 50%. up to 35,000 jobs could be lost.
– WHAT ARE THE LETTERS IN THE NEGOTIATION?
In the coming months, London and Brussels should design the foundations of a new relationship. Not only will financial services be on the table, but also all trade, security cooperation and immigration regulations, among many other aspects.
Some British media have pointed out the possibility that the EU will require London to access its fishing waters in exchange for financial equivalence, although several experts believe that the dialogue on the City will be isolated from other issues.
“Aspects such as fishing have their own correspondences. If the United Kingdom does not allow access to its waters, then British fish producers will have a hard time selling on the European market,” David Henig, director of the ideas lab, told Efe tank “UK Trade Policy Project.
“I think there could be an agreement only on financial services, which does not involve other sectors,” said Henig, who nevertheless points out that the most likely area to enter into play as a letter in that negotiation is the access of community workers to the market. British labor.
In the same vein, Paul Dales, chief analyst at Capital Economics, told Efe that the most likely scenario is that a “gradual approach” will be adopted in the negotiations.
“This year you can reach an agreement on the exchange of goods and establish an arrangement that maintains the ‘status quo’ for financial services until a pact is reached later,” the economist considers.
“We hope that there will be no major changes in the way in which financial services operate,” adds the expert, who finds it feasible for the EU to accept some divergence in British regulations as long as the “results” of them are equivalent.