Continued delay and obfuscation over the exact shape of the future relationship between the EU and the UK has left many of the companies working in financial services unclear and unsure as to the regulatory environment in the UK from 2021.
Oddly, with months left until the end of the transition period, companies are not clear if they are able to market and sell services inside the single market from 2021 because of political wrangling over equivalence.
It is not as if financial services is a cottage industry. It is a big player across the globe with a key and significant role in the British economy.
According to the Office for National Statistics, £132bn is generated each year by financial services companies.
The UK today is heavily reliant on financial services and is, in many respects, the engine that drives the British economy, accounting for 6.9 per cent of overall British economic activity.
London’s standing as a financial centre, where compliance to regulations is gold-plated, is seriously in jeopardy given the ambiguity around equivalence, and the potential for UK-registered financial services providers to be penalised for operating inside the EU from 2021.
The City has all the necessary components for financial services companies to operate effectively; added to this is the adherence to the rule of law and regulations, acting as one of the biggest reasons for operating out of London.
The move towards a no-deal Brexit by the UK government undermines the continuity; stability that many companies have relied upon to plan and manage their businesses.
This instead is likely to be replaced by continued uncertainty over access to the EU single market and what the exact shape the future relationship will be with the EU.
Particularly concerning for financial services in the UK is the prospect that a no-deal Brexit will in fact mean more red-tape for businesses when we end the transition period.
There is likely to be a lot more red tape for trade, for employing foreign workers and also for the day-to-day operations of companies who have been used to seamless access to the EU and the single market.
KPMG has said there will be “super equivalence” with the ringfencing of large retail deposit-taking banks, which came fully into force on January 1 2019.
As a result, the UK has introduced a large number of regulatory measures that have gone beyond EU legislation, in terms of two types of ‘super equivalence’: a tougher approach to regulatory reforms covered by EU legislation and the introduction of measures not (yet) covered by EU legislation.
If we are to move towards a ‘light-touch’ regulatory environment particularly in financial services, a deregulated financial services industry will in effect provide less safety for foreign investment and consumers. A light-touch regime has the potential to see a rise in poor conduct, poor behaviour and corporate fraud as a result, as well as poor corporate governance, less transparency and less accountability at board level.
We must resist the temptation to remove important elements of EU-wide corporate law and conduct requirements in order to break free from the supposed yoke of EU control.