David Davis, the secretary of state for leaving the European Union, has refused to guarantee financial services will be able to operate on at least the same terms after Brexit as it does now.
Speaking at an event in London yesterday (28 March) he said passporting for all areas of financial services - enabling authorised firms in EU or EEA states to trade freely in any other with minimal additional authorisation, the foundation of the EU single market for financial services - is an “aspiration” for his negotiations with the EU.
But he said Britain "might not get all areas of financial services ” in the final deal he expects to negotiate.
The automatic right to passporting ceases when the UK leaves the EU, scheduled for next March, unless it can be negotiated back in as part of the agreement.
Mr Davis said one of his "red lines" in the negotiations will be to prevent the UK being part of any kind of common tax policy with the EU after it leaves.
It has been suggested the UK might agree not to reduce its corporation tax rate below a certain level. This would stop the UK trying to boost its economy after it leaves the EU by cutting taxes to entice businesses from other jurisdictions.
Mr Davis said he will not accept any such common tax policy.
However, as FTAdviser previously reported, the Financial Conduct Authority (FCA) has already said the UK leaving the EU will not lead to a dramatic scaling back of its regulation as a method of attracting new business to the UK.
Mr David said the negotiations have, so far, “gone much as I expected".
"I never thought it would be easy, and certainly not the stages of the negotiations we have had so far, because up to now the EU countries have been united about what they want, but that will change in the next phase of the negotiations.”
Richard Buxton, fund manager and chief executive of Old Mutual Global Investors said: “We will remain members of the single market and customs union for a 21 month transitional period ending on 31 December 2020, before embarking on our real future outside the EU.
“Can we relax now and plan for the future with some certainty? Sadly not.
"To this observer, it remains nigh impossible to negotiate the nature of our post-transitional trading relationship in a way which satisfies all the different factions of the Conservative party – plus Northern Irish MPs – as well as meeting Brussels’ desire to ensure that life outside the EU is sufficiently harder as to discourage any other member state from having the temerity to question the benefits of the European project.
“This is the circle I find impossible to square with one year to go, just as I did after the referendum result all those months ago, back in 2016.
“The EU negotiators dangled the prospect of including financial services in a free trade agreement, before removing the relevant passage from the guidelines for the future negotiations, whilst stressing it could reappear in due course.
"So the chances are that we shall still spend the next year subject to contradictory statements from all sides as to the kind of future trading agreement we might be working under.”
Analysts at the Economist Intelligence Unit said they expect the UK to lose passporting rights, but to remain a major financial centre.
David.Thorpe@ft.com
