On 7 March 2018, the Chancellor of the Exchequer, Philip Hammond, gave a speech on financial services and Brexit.
Among other things, Mr Hammond challenged claims that financial services cannot be part of a freetrade agreement (FTA) after Brexit and described some of the components of such a partnership. He also said that the principle of mutual recognition and reciprocal regulatory equivalence, provided it is objectively assessed, with proper governance structures, dispute resolution mechanisms, and sensible notice periods to market participants could provide an effective basis for a partnership.
The UK and the EU would need to maintain a structured regulatory dialogue to discuss new rules proposed by either side, to ensure they deliver equivalent regulatory outcomes agreeing mutually acceptable rule-changes where possible. An objective process would be needed to ensure these rules provide sufficiently equivalent regulatory outcomes. The way in which they are enforced should also be assessed. The process should draw on international standards where they exist, or on additional principles for equivalence where the UK and EU have more developed rules.
Mr Hammond also said that although the UK would cease to be a part of the EU’s supervisory agencies, there is no reason why it could not maintain a very close working relationship, for instance, through proactive and extensive information exchange authorised by the data-sharing agreements within the overarching FTA. It could cover market abuse, transaction reporting, and stability monitoring, as well as prudential concerns about individual firms and it could involve a version of the existing college structures, covering both day-to-day supervision and resolution in crisis.
Mr Hammond said that in certain circumstances the UK may not choose to maintain equivalent outcomes with the EU and it would have to address how this future partnership would work in such circumstances with clear institutional processes. The UK needs to ensure that any consequences were reasonable and proportionate, applied in a predictable way and delivered through an independent arbitration mechanism that has the confidence of both parties