The City is owed an explanation of how Britain will trade with the EU, the FT editorial board says.
[...] Cost-conscious bankers and asset managers are waiting until the last moment before moving workers or investing on the continent. Clients are clear they want to remain part of the most liquid financial centre in Europe right up until the EU authorities actively force trading to move. Only at that point will it become apparent what the City lost.
This makes the future relationship with the EU critical. An entrepreneurial ethos reigns, but unnecessary loss of access to the bloc would be an act of self-harm. Airy talk about “Global Britain” ignores the reality: the vast majority of business done in the City is by global banks, insurers and asset managers using London as a gateway to the EU and well beyond. A “hard” Brexit would sever the City’s access to EU markets and undermine that role. Mr Johnson’s apparent desire to remain aligned in some areas and diverge for competitive advantage in others harks back to the City’s own cherry-picking pitch, more than a year ago, for a system of “mutual recognition”. Brussels rejected that idea.
Full alignment has its own risks. EU financial regulation has been largely UK-made. Without British negotiators at the table, regulation could evolve differently, with pragmatism and a principles-based approach overruled by a more dirigiste stance.
Some parts of the City are desperate to be unshackled from EU constraints: hedge funds and private equity from AIFMD; brokers from Mifid II; insurers from Solvency II; bankers from the bonus caps of CRD IV. But managing regulatory divergence will always be harder than convergence.
The City is at its best when it is entrepreneurial. In recent years, notwithstanding the disruptive influence of Brexit, London has extended its lead in offshore renminbi trading. In fast evolving areas, such as green finance, Brexit offers an opportunity for regulators to show leadership. Talks on the future relationship should ensure such dynamism is protected. Last week’s suggestion that Brussels would grant a one-year extension to derivatives arrangements shows EU clients need access to the City. [...]
Full editorial on Financial Times (subscription required)
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