REUTERS: Britain needs to build a new international model for financial services after its decision to quit the European Union, a top banker representing an industry lobby group said yesterday.
John McFarlane, chairman of TheCityUK, which promotes Britain’s financial services sector, called for stable and effective political leadership and clarity on what the UK wants from talks with the EU after its “self-inflicted wound”.
McFarlane, who is also chairman of Barclays, said “we neither know the shape or direction of things to come”.
“It’s far from certain what we might be able to secure from discussions with the EU,” he told TheCityUK annual conference.
Britain is not expected to begin negotiations with Brussels until the autumn after a new prime minister has been chosen, and the talks could take years to reach a deal on new trading terms.
There has been speculation that much of the trading done in London could shift to continental Europe following a British exit from the 28-country bloc, but McFarlane said Europe’s capital market had evolved in London rather than Paris or Frankfurt and would be incredibly difficult to replicate.
One critical point of debate in any talks will be the “EU passport” which British-based banks, including major Wall Street players such as JPMorgan and Goldman Sachs, depend on to be able to offer their services across the bloc.
The quid pro quo is that EU leaders are likely to demand that for the UK to have continued access to the single market, it would have to respect the freedom for EU citizens to come to Britain, something which is seen as a tall order for pro-Brexit campaigners who based their campaign on curbing immigration.
“We will come to a crunch point of free movement of labour,” Mark Boleat, head of policy at the City of London Corporation, told Reuters at the conference.
No light touch
While banks and asset managers had contingency plans for a Brexit, they said it was too early to act given that Britain would remain in the single market for at least two years.
“We are all working on multiple scenarios. For many firms, it would be premature to activate all that pre-referendum planning,” said Claire Woodman, global chief operating officer for institutional securities at Morgan Stanley.
Some City bankers hope privately that formal, two-year exit talks won’t be triggered by Britain, although others said this was wishful thinking and urged the government to give reassurance that EU nationals have a secure future in finance.
After British banking stocks were hammered in the wake of the Brexit vote last week, Harriett Baldwin, a junior finance minister, sought to reassure the City of London, with banks well capitalised and the Bank of England ready to take action.
“Financial markets are capable of weathering challenges, they adapt quickly and they find new opportunities,” she said.
Another likely area of discussion is financial regulation, with Britain traditionally seen as having a lighter-touch when it comes to supervising its banks and brokerages than its European neighbours.
TheCityUK Chief Executive Chris Cummings said it was even more important for regulators to be “measured and proportionate”, and not to hold back new growth areas like financial technology, known as “fintech”.
But Douglas Flint, chairman of HSBC, told the conference there would be no return to light touch regulation, although negotiations with the EU could offer an opportunity to recalibrate some rules.
Flint said that the fact that markets all functioned well this week, despite volumes surging to six times normal levels, showed that regulatory changes since the 2008 financial crisis had left the UK’s financial system in robust shape.