The City should not tangle itself in red tape to preserve its business that is EU-facing, writes Jonathan Ford.
[...] why the more prescriptive approach? Brussels says it is necessary to deal with the systemic risks caused by Europe’s continued dependence on the City of London after Brexit.
But turning the UK into a financial rule-taker would not obviously reduce these perils. Indeed, by separating rulemaking from regulation, it could conceivably magnify them. For instance, concerns at some future point about the stability of the eurozone could encourage EU officials to impose restrictions on the functioning of markets — such as short selling bans and curbs on the ability of institutions such as credit rating agencies to issue “unhelpful” judgments on sovereign issuers and financial institutions. Mark Carney, the Bank of England governor, warned last year that such outcomes could “cause a risk to financial stability”.
Much ultimately depends on how the EU chooses to define its more granular definition. Too tight an approach, and that must likely push the UK in the direction of retaining regulatory sovereignty even at the price of losing officially sanctioned access privileges.
Even before the Brexit referendum, when the UK envisaged remaining a full EU member with voting rights, the government of David Cameron was already worried about the increasingly intrusive and mercantilist direction of EU financial regulation. Theresa May has ruled out a Norway-type end state as an unacceptable version of exit, partly because of the need to take others’ rules.
Leaving without a deal on financial services is not Britain’s objective. But it cannot be excluded if an acceptable way forward cannot be conjured.
The City’s powerful position in EU finance was largely built before the passport was invented, and it should not tangle itself in European red tape simply to preserve a portion of the 20 per cent of its business that is EU-facing.
The UK should, in those circumstances. accept Mr Barnier’s view that finance will not be part of any special treaty, maximise the legal and linguistic advantages that allow it to be competitive, and continue to expand its global trade.
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