Both the EU and the UK have, in their own ways, expressed the desire to secure future arrangements for free trade in financial services.
Whether or not you call that a Free Trade Agreement is academic.
Theresa May said in Florence that we could do so much better than a Canada-style (FTA).
She gave two reasons: we should be more ambitious than that; and it could take two years to negotiate.
Both the EU and UK seem to be coming closer together on what we need – namely mutual access to each other’s markets.
With a transition period now official UK policy, continued market access could be made automatic post-March 2019 on the basis that – as the PM herself pointed out – our rules are currently aligned.
That would set the scene the negotiation of an ambitious EU-UK agreement to allow continued free trade in financial services between the two parties, even if their respective laws and frameworks began to diverge.
How you would do this is set out in a report published this week, from the International Regulatory Strategy Group (IRSG), which brings together independent experts and financial services firms based in the City of London.
The IRSG has a membership reflecting the diverse nature of financial and professional services firm operating in London. Its members are headquartered across the world – in the UK, Europe, the US and the Far East.
A team from Hogan Lovells has been busy crafting the legal and technical detail of what is clear and workable blueprint for future mutual access to EU and UK markets.
It is based on previous FTA models, but goes much further than that. So it meets Theresa May’s test of bold ambition.
Free trade in financial services means access to each other’s markets without the need to apply for approval or a licence, provided appropriate supervision, co-operation and dispute resolution arrangements in place.
The agreement can build on the very fact that both parties start from the same place on the laws and rules governing the sector.
With political support, such an enhanced FTA is technically and legally entirely feasible, including from a WTO perspective. Indeed, it should form a financial services ‘chapter’ of a wider EU/UK agreement.
Maintaining a framework of rules and supervision that protects consumers and promotes stability is important.
But the report is also based on the premise that a free-flow of trade in financial services is economically and socially beneficial both to EU member states and to the UK, and to their respective citizens.
Unrestricted capital flows across Europe, and the ability of European business to access finance, are vital to maintaining a robust economy.
All the main power blocs in the EU and the UK itself want that.
Timing is a critical issue for the financial services sector due to the long lead-times involved in setting up in another jurisdiction: now that the mood music had changed somewhat, the EU and UK should seek as early as possible to agree a framework for their future relationship.
This should keep the current access arrangements for financial services, while the EU/UK agreement is being negotiated and finalised, with a phased period of implementation after that.
Mutual access can be based on a mix of regulatory alignment generally, a non-aligned regime for larger entities and government bodies, and a special regime for trading platforms and market infrastructure.
As the UK will be leaving the EU, a new resolution body should be established, in line with numerous precedents.
It should be primarily judicial in nature, and its purpose should be to reach definitive and binding decisions.
As the PM said – “I am confident we can find an appropriate mechanism for resolving disputes”.
Difficult and complex as regulatory and trade matters may sometimes seem, the Florence speech and reaction to it show how important a clear direction of travel is to making real progress on such matters. And it is about time.