A group representing the UK’s financial and professional services sector, the International Regulatory Strategy Group (IRSG), has today published a Brexit blueprint, in collaboration with Hogan Lovells, for how the UK can continue trading with the EU after leaving the bloc.
The report’s core recommendation is that the EU and UK forge a bold and ambitious free trade agreement (FTA) that covers financial services. The FTA would build on the advantageous position that both parties start from a position of alignment on the laws and rules governing the sector.
The main feature of the EU/UK FTA would be that firms could have mutual access to each other’s markets without having to obtain a licence in the other market.
Such an enhanced FTA is technically and legally entirely feasible. It would be likely to form a financial services ‘chapter’ of a wider EU/UK agreement. Indeed, the cross-border supply of financial services under the FTA we envisage (using the parties’ uniquely aligned starting point as a means to develop a detailed and workable template) could be a catalyst for accelerating other discussions.
Market access arrangements
The EU/UK Agreement could have different bases for mutual access based on different scenarios, as considered in the report. In most cases, mutual access would be based on the premise that the UK and EU regulatory frameworks for financial services are already highly aligned, and that this alignment can be maintained in the future at the level that would give respective jurisdictions the confidence to allow firms licensed in the other jurisdiction to operate in their markets.
Promoting ongoing alignment
A shared Forum for Regulatory Alignment would facilitate an ongoing regulatory dialogue around the adoption of new global standards, and new regulatory initiatives. This would promote alignment between the EU and UK regimes.
A new dispute resolution body, modelled on precedents from existing FTAs, would issue rulings on whether material divergence has occurred and whether, as a result, some element of market access should be withdrawn.
Maintaining mutual market access under a new EU/ UK FTA should be achievable because the starting point is maximal alignment. Indeed, initiating mutual access should be possible without any formal assessment of alignment precisely because of this, ensuring smooth transition to the new arrangements.
Timing is a critical issue for the financial services sector due to the long lead-times involved in becoming established and authorised in another jurisdiction. The EU and UK should seek as early as possible to agree a framework for their future relationship, which commits to preserving current access arrangements for financial services while the EU/UK agreement is being negotiated and finalised.
You can read the executive summary here.