LONDON – On Friday at 2300 GMT, Britain officially exits the European Union- but still has a long-drawn process of negotiating future trading relations deal with the bloc.
Being Britain’s largest financial market, the European Union is worth approximately 26 billion pounds annually in exports. The business of this level aided London in becoming a world financial centre making it the country’s most-important tax-raising sector.
Here’s what is expected to happen to the financial sector in the country post-Brexit:
JANUARY 31ST
As of January 31st, effectively nothing shall change. There will be a transition period which begins not long after wherein investors from the EU and Britain will not see any change in services.
Till the 31st of December, all EU financial rules shall continue to apply to Britain.
Financial sector parties like banks, asset managers and insurers in the UK can continue to get full, unfettered investor access in the bloc in this transition period.
STARTING JUNE
Trade deal talks between Britain and the EU will begin in June for a deal which shall come into effect from January 2021.
Under an “equivalence regime”, both parties will be granted access to the others’ financial services markets and each side can decide if the rules of the other are aligned to its own.
Technical equivalence assessments will be agreed upon by June end.
Britain is the most equivalent country and the EU has made it apparent that actual access will hinge on trade-offs in a deal which cuts across all sectors of the economy.
Without equivalence, EU investors will probably have to stop using London-based platforms for trading euro-denominated shares, while EU companies would have to use banks inside the bloc to issue bonds.
Asset managers in Britain, meanwhile, may not be allowed to continue running funds domiciled in the EU without equivalence.
Even with equivalence, which falls far short of the unfettered access from the so-called ‘passporting’ system currently in operation, there will be only patchy and limited direct access from Britain. For example, it does not cover basic banking or insurance broking.
BULKING UP
Financial firms in Britain have opened more than 300 subsidiaries in the EU to avoid disruption to business in the event of any glitches, such as delays in obtaining equivalence, and will face pressure from EU regulators to keep bulking up.
Consultant EY estimates that 7,000 jobs are moving from Britain to staff these satellite operations, though bankers say this could rise over the course of the year if it appears there will be no equivalence agreements in place by December.
NO BONFIRE OF REGULATIONS
Leaving the EU means that Britain will be responsible for writing financial rules that hitherto came from the EU.
But the financial sector has said it does not want a “bonfire of regulations” that could jeopardise equivalence and many rules that already follow globally agreed principles.
Instead, the sector is asking UK regulators to have a formal remit to avoid new rules that put London at a disadvantage to New York or Frankfurt.
Banks are also pressing the UK government to ease taxes and levies on the sector while also calling for an immigration system that will allow continued recruitment of skilled employees from across the world.
(Photos syndicated via Reuters)
This story has been edited by BH staff and is published from a syndicated field.