Chancellor of the Exchequer Philip Hammond has expressed doubts about whether the UK would cut back on financial sector regulation after Brexit.
Appearing before the Treasury Select Committee this morning, Mr Hammond said the UK would have to seek some sort of “enhanced equivalence” with the European Union.
He also expressed scepticism about whether the UK should align itself to the US, where the Trump administration has been discussing whether to cut regulation, rather than the EU.
Mr Hammond said: “There is a debate going on about the extent of deregulation in the US.
“Clearly if the US gets out of alignment that will be an additional complication for us to consider as we go forward.
“I don’t think the UK should sign up in principle to regulatory equivalence with country X, knowing that country X may change its regulatory framework in a way that is unpredictable.
“The UK taxpayer paid quite a high price in 2008/09 and we are not going to expose the UK taxpayer to the kind of risks that it was exposed to in 2008/09.
“The regulatory system is not just to be seen in a competitive context. It is to be seen in a consumer protection context as well.
“There is a world of difference between a regulatory framework that allows a new innovative small player and allowing large incumbents to engage in risky behaviour.”
Mr Hammond’s comments echoed those by Christopher Woolard, the Financial Conduct Authority’s executive director of strategy and competition, yesterday (10 October).
Speaking yesterday Mr Woolard said many standards were now set globally and dispelled the idea that post-Brexit Britain could attract business by slashing its regulatory burden.
Mr Hammond also said the UK would probably seek “enhanced” equivalence with the EU because the equivalence the EU offers to companies in the US is “asymmetric and unilateral” and can be withdrawn.
He said: “This would not be a basis on which to offer a financial services business.”
Mr Hammond appeared alongside Katharine Braddick, HM Treasury’s director general for financial services, who said she is aware of some of the deadlines facing financial services firms.
She said: “The firms that are progressing their relocation planning most urgently are international banks that use the UK to serve their EU clients.
“Those firms have been planning for some time. They have had a number of decision points for progressing those plans but those plans harden at the point at which they start to alert contractual paperwork with clients.
“For most of the firms that we talk, to that will fall at some point in the first quarter of next year.
“So the industry has been talking in public and to the government about a transition period, because apart from anything else what they want is to have longer to see where the deal is likely to emerge, so they can understand they are planning for a likely outcome and not spending money and inconveniencing clients in a way that may be unnecessary.”
Mr Hammond also addressed yesterday’s forecasts from the International Monetary Fund which singled out the UK as a “notable exception” to global growth picking up.
He said: “The IMF report yesterday showed the UK figures for 2017 and 2018 unchanged from their July report.
“Against the backdrop of increases posted for many other countries around the world, I think it reflects the sense that while the UK economy is strong and in good shape, we are being affected by uncertainty around the negotiation process.
“My general view of our economy is that it is fundamentally robust.
“But the cloud of uncertainty is acting as a temporary dampener and we need to remove it as soon as possible.”
Mr Hammond also said he would not spend money on preparing for a no-deal result from the Brexit negotiations until the "very last moment", saying this would involve diverting money from health and education just to "send a message" to the EU.
damian.fantato@ft.com
