UK Edition
Wood pyres are being piled up high, with EU regulations stacked upon them. It’s bonfire night come early – with European red tape in place of the Guy. That may be the wish of some, but it is not the wish of the banking sector.
London is Europe’s financial centre, funding business across the continent. That isn’t just good for European growth and jobs, it is good for the UK. Mainland European companies want access to London’s deep and liquid capital markets, and having major European banks based here is good for British businesses which want access to their specialist services.
Banking is our biggest export industry by far, winning work from across the EU and bringing it back here, creating jobs across the UK – two thirds of them outside London. Without the exports from banking, our national trade deficit would be twice as big. Banking exports help pay for imports from iPhones to bananas.
The only way to guarantee that UK-based banks (both British and foreign) can still provide the financing the European economy needs is for the UK to retain full access to the single market. If we start stripping away European financial services legislation, we are less likely to get single market access. It is not just that banks will no longer be able to sell certain services to European customers – the whole financial ecosystem is interconnected, and stripping away one regulation can have widespread consequences.
We are also – quite rightly – required to have many of these regulations as part of global reforms to ensure the financial crisis never happens again, and to combat financial crime. Roughly 80pc of the UK’s banking regulation comes from the EU, but the EU has generally adopted them only as a result of international standards set by global bodies such as the Financial Stability Board (chaired by the Bank of England Governor, Mark Carney) or the Financial Action Task Force. If we didn’t have the EU regulations, we would need our own. There is no going back to light-touch regulation. We tried that, and it failed.
Tearing up EU regulations ahead of consultations on our future relationship would also send out the message that we are trying to gain a competitive advantage over those we are negotiating with. It will make them far less likely to make any concessions on the things we do want.
The brutal fact of the matter is that we will need as much negotiating capital as possible. This isn’t just because we are one country and they are 27, but that the negotiating process is stacked against us. As soon as the Government triggers the Article 50 application to leave the EU, then if we don’t get agreement on the terms of exit within two years, we will leave the EU without any agreements at all in place (a so-called “naked exit”), and revert to World Trade Organisation rules.
There is nothing under WTO rules that allows provision of banking services, and so UK banks will overnight have to stop providing almost all services to European companies (with only a few exceptions, such as spot foreign exchange, which is not regulated). In reality, with that deadline looming, the banks would have had to relocate services beforehand.
Negotiating with such a damaging deadline looming would make it difficult to get a deal that works for both sides. That is why it is really important that the Government develops a proper negotiating strategy – and gets a proper negotiating team in place – before it triggers Article 50.
So for all these reasons, we are committed to retaining existing EU regulations, and implementing those that have already been agreed, such as MIFID 2, which governs the rules on selling securities. We also want to ensure that forthcoming EU legislation is transposed into UK law, such as the fourth EU anti-money laundering directive, which is due to go to a vote in Parliament.
It is opposed by some MPs who don’t think we should adopt any new EU legislation, and others who are opposed to tougher money laundering rules applying to politicians. But we need these new financial rules to comply with international standards and to ensure we will retain full access to the single market. We should not be reacting to short-term political imperatives, but thinking about what we want things to look like in 10 or 20 years’ time.
I like a good bonfire as much as anyone, but we don’t want a bonfire of red tape. It is not just that it would be bad for banks – it would be bad for bank customers, both in the UK and Europe, and bad for our economy.
Anthony Browne is the chief executive of the British Bankers’ Association
Banks say 'no’ to a bonfire of red tape