Thursday, April 21, 2016

The City's Good News Post Brexit

Following a vote for Brexit, we will see a more competitive City, freed from the burden of excessive over-regulation, open to the world for business, thriving as it develops global markets, able to better compete with New York, Hong Kong, Singapore and Tokyo.

We list below some of the key questions for The City.

Where is the Industry Growing?

Financial service exports currently represent 4% of the UK's GDP of which only 1.2% is to EU. This number is falling dramatically, despite our lack of trade agreements outside of the EU.

While today the EU represents 33% of our industry's exports (down from 39% ten years ago) it is barely more than the 31% of the industry's exports that go to the US - a country with which we do not have a trade agreement (and financial services are currently excluded from the long overdue Transatlantic Trade and Investment Partnership).

As Daniel Hannan reminds us "According to the IMF, every part of the world grew in 2014 except the EU. Africa, Asia, North and South America and Australasia have all recovered fully from the 2008 crash, but Europe has picked up a bug that it can’t shake off. Incredibly, the Eurozone faces its third recession in six years."

Our Hard-to-Replicate Competitive Advantage

London’s world-beating assets will continue to attract all comers.

  • The complexity and breadth of London’s markets and infrastructure, covering every internationally traded product, is a strong competitive advantage that will be hard to replicate.
  • The massive talent pool and depth of ancillary services is unavailable elsewhere in EU.
  • Our language, legal system and courts are respected and trusted world wide.
  • We have, and will be able to retain, strong representation on key international bodies such as G7, G20, IOSCO, Basel, Financial Stability Board(FSB) and the OECD.
  • London is the most competitive financial centre in the world.

What about access to the EU market?

Seventy-five EEA banks currently passport into the UK in order to take advantage of our financial services ecosystem. While it is clearly in the interests of the EU to retain this ability, Third Country Passporting - as defined in MIFID2 - is expected to enable the UK to maintain access to the EU market for institutional transactions in any case.

What is the Up-Side to a Brexit for The City?

Financial regulation in the EU is determined by participation from all the member states, no matter where they are in their economic cycle or how evolved their financial markets are. This means that there is significant influence from those EU Member States that do not have significant financial services sectors and whose needs are quite different from our own. Out of the EU, we will be able to repeal, revise or avoid unpopular and damaging measures, ensuring that we comply with global standards in the way that best suits our own economy.

  • 50% of the twenty EU financial service regulations in the past 15 years would not have been enacted by Britain alone
  • A further 20% would have been enacted in a less onerous, more practical form
  • The remainder were required for the EU to catch up with existing UK standards and practice
  • Regulations that can be reconsidered for revision or repeal include:
  • Bonus caps
  • Short selling bans
  • Solvency II
  • MiFID II
  • Euroclearing restrictions
... and a further 420 micro level regulations now in EU pipeline

The UK will also have the threat of continued outvoting and increased encroachment removed:

  • Since 1996 all 72 measures opposed by Britain were still enacted by EU, of which 40 were since 2010 
  • EU regulation from 1993 to 2014 accounts for 59% of UK law, mostly directly implemented avoiding Parliament altogether
  • The recent "Five Presidents Report" commits the EU to the creation of a ‘genuine Economic Union’, and puts insolvency law, company law and insolvency law squarely in the the sights of the EU.
  • We can avoid having future ‘binding promises’ broken, such as the ready breach of Article 125 in funding Eurozone bailouts.

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