UK positions itself to negotiate a unique post-Brexit deal for Financial Services.

London & Berlin

The EU member states will not allow the UK to dictate post-Brexit arrangements.  This has been made clear ahead of the next phase of negotiations – including possible transitional arrangements – that are scheduled to begin in March.

Of the 4 potential scenarios presently monitored by Brexit-Partners [1], the UK negotiating team – whilst not mentioning ‘Canada’ by name – continually allude to unrestricted trade in goods.  They are presently positioning to add services – and, in particular, financial services - which comprise around 80% of the UK economy – and which would be pivotal to any successful deal.

Chancellor Philip Hammond and Brexit Secretary David Davis have called for the "most ambitious economic partnership in the world” during a trip to Berlin (10 January 2018) where they are to address the Die Welt Economic Summit.

UK-based banks and financial firms are worried they will lose the ‘passporting’ rights that allow them to trade freely in the EU after Brexit - an outcome which is likely to see firms moving jobs to the continent.

The EU's chief negotiator Michel Barnier has consistently warned the UK it cannot hope to get a special deal for the City of London and that its options have narrowed as a result of it turning its back on the single market.

Hammond and Davis argue that: "It makes no sense to either Germany or Britain to put in place unnecessary barriers to trade in goods and services.  That would only damage businesses and economic growth on both sides of the Channel,"

"When we leave the EU, we will leave the Customs Union and Single Market.  But in agreeing a new model of cooperation, we should not restrict ourselves to models and deals that already exist."

"On the contrary, we must re-double our collective effort to ensure that we do not put that hard-earned financial stability at risk by getting a deal that support collaboration within the European banking sector rather than forcing it to fragment."

[1]  Bexit-Partners are monitoring and modelling the impact and responses required to 4 broad scenarios.  Contact Brexit-Partners for a current view and advice on next steps:

i.  Staying in the single market and customs union.  UK signs up to all the EU’s rules and regulations, staying in the single market – providing for free movement of goods, services, finance and people; and the customs union, in which EU members agree tariffs on external states.  UK would continue to pay into the Brussels pot for shared interests and investments.  Some people argue that the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an outcome and may be possible only by reversing the Brexit decision – by Parliament, after a second referendum, or a general election.

ii.  The Norway model.  UK follows Norway, which is in the single market adopting the ‘freedom of movement’ rules, paying a “fee” to Brussels, but is outside the customs union.  This scenario ties Britain to EU regulations, but allows it to sign trade deals of its own.  A “Norway-minus” deal may be more likely.  This would see the UK leave the single market and customs union and end free movement of people.  However, UK would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access.  The UK would still be subject to EU rules for goods and services provided to Europe.

iii.  The Canada deal.  A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would presently be little on offer for the UK services industry.  Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this UK preferred option based on Theresa May’s direction to date.

iv.  No Deal.  Britain leaves at 23:00 on 29 March 2019 with no deal reached.  All trade is, by default, governed under the World Trade Organisation rules.  Tariffs would become effective.  All goods will be subject to border clearance.  No services will be automatically ‘passported’.   This applies to people, goods, finances and services moving in either direction between the UK and the EU.  The UK will need to establish bilateral agreements to deal with the consequences – however, the country would be free to take whatever future direction it wishes.  It is unlikely that the necessary regulatory or operational systems, procedures and personnel will be in place by Spring 2019 – high probability of severe disruption and a chaotic situation in the short term.

John ShuttleworthComment