Wednesday, May 18, 2016

The City's Increased Influence Outside the EU

Though opinions differed at the time, few would now disagree that Britain's decision in 1999 to stay out of the Euro was the right choice. Furthermore, with the Eurozone crisis still in full swing some seven years on, for Britain to join now is rightly seen as political and economic folly and is to all intents and purposes off the table.

Still, the core of the EU is the Eurozone, and any financial reform and integration will naturally focus on the interests of this bloc. Currently 19 out of 28 EU countries use the Euro, with a further seven obliged to join after the convergence criteria are met. By population this is 66% of the EU now and will be 85% after the other seven have joined. The UK represents 13% the remaining 15% and so is vastly outnumbered under the Qualified Majority Voting mechanism of the Council of the EU. The Eurozone has a permanent majority.

More policies are coming. The 2014 UK government competency review on the single market for financial services identified that:

"...a significant overarching feature of EU financial services regulation since the financial crisis has been its sheer quantity. Over the last ten years, there has been a roughly ten-fold increase in the volume of EU law on financial services..."

The continuing European debt crisis will require significant reform and further unification to stabilise the group. The 4 Presidents Report of 2012 and the more recent 5 Presidents Report of 2015 are a direct response to this. They set out the ambitious objective of “a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union”. The reports focus on the key areas of banking union, closer budget integration, the coordination of economic policies and a strengthening of legitimation and accountability. The time-scale is ten years.

Barring an unprecedented level of political dissent in Europe, these radical changes will happen. Naturally, this will mean large-scale centralisation and will focus heavily on the interests of the Eurozone. It is impossible to argue that the integration dynamic of the EU does not affect the financial sector in the UK.

The UK will have greater influence over international markets and regulations from outside the EU. To argue that we can only have influence from inside is misguided. Our current membership of the global bodies such as G8, IOSCO and the Financial Standards Board (currently at risk from the EU, incidentally) - which together set the framework for financial services regulation - clearly demonstrate this. It will also ensure that the City maintains the necessary equivalence for continued full access to and from Continental markets. Passporting is reciprocal, massively strengthening the UK's hand in achieving an acceptable arrangement. The Bank of England itself has identified 75 Continental banks which passport into the UK and it is reasonable to assume that they will want to continue to do so.

The City is a the world's leading financial centre. We compete with the likes of New York, Singapore and Hong Kong. There is nothing remotely comparable on the Continent. To maintain the flexibility to compete globally we must have the ability to manage our own systems, with rules that make sense for our unique offering, not bound by blanket legislation that has been designed around others' political and economic objectives.

Change will happen, and there are only two paths open: One is remain in the EU, a declining customs union, without control over the direction it will take; the other is take back control, leverage and protect our established strengths in international markets and vote leave.

The City should be free to choose its own destiny, and will prosper when it does so.

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