Cameron Penny is a financial services lobbyist.
Certain things present themselves as facts. That the majority of leaders in the financial services industry were in favour of the UK remaining in the EU is one of those. That we are leaving the EU is another. That the Prime Minister favours an outcome that sees us outside the ECJ’s jurisdiction and with an “end” to the free movement of people are two others. Within the last three there is a significant amount of political wiggle room. That understanding hasn’t been lost on those who ran the Vote Leave campaign. You can see that in the rebranded operation that is now known as “Change Britain” and in the BrexitCentral morning emails that churn through with reams and reams of newslinks to articles that support a particular type of Brexit – broadly in favour of the hard variety.
What the Brexiteers have seen is that in the fallout of the 23rd June referendum there is opportunity. That realisation is shared in parts of Whitehall where you find some of those most excited about the possibilities about our exit from the EU sitting inside Defra. There are huge swathes of legislation that stand to be abolished or amended once, and assuming this is the case, full sovereignty over England’s (and Scotland, Wales and Northern Ireland’s) green and pleasant land returns. Does the Three Crop Rule keep you up at night? Well within a few years that may no longer be an issue, depending on how effectively farmers lobby the British Secretary of State in charge of British soil. In that effort I wish them very well; agriculture and fishing adds £10.7 billion to the UK economy and employs just over 440,000. It’s important that it thrives.
Yet what of the financial services industry? It adds £126.9 billion to the UK economy and employs just over 2.2 million people across the UK. What noises do we hear from this enormously valuable industry? Well to read the leaked (naturally) memo of David Davis’s meeting with the Corporation of the City of London the impression you would get is that PR firms in the City are running around like chicken little, bankers hate Frankfurt and will more likely end up in New York and “passporting” isn’t really an issue. For its part, the industry says passporting is an issue, is publicly known to be looking at reallocating people and what it really wants is a few years to “transition”.
This is a woeful state of affairs. We have a Brexit Secretary of State who despite being humbled since his appointment still believes that the UK will dictate terms to the EU27 and an industry whose response is simply one of two things: “Stop it or we’ll leave,” and “OK, we’ll comply but give us time.”
The former has been tried, tested and found wanting as a grand master strategy for years. No large scale financial services firm has ever seen through on a veiled, or not so veiled, threat to relocate. In the rare cases it has happened it’s soon been reversed; Brevan Howard’s employees spent five years in Geneva before tiring of its charms.
The latter is utterly unambitious. The crown jewels of the UK’s financial services industry are the large, multinational firms; those that populate the gleaming towers of the City and Canary Wharf. London’s success has spread throughout the UK, it’s a hub and spoke model that has aided the rejuvenation of great cities like Leeds and Manchester. Those firms know that the focus on passporting is an easy, and simplistic one. Let’s be clear; the passporting rights that exist in EU legislation do not cover all activities that financial services firms undertake. Passporting in and of itself is not a silver bullet. It is not the answer. Faced with passporting or nothing then we should take it but the continual reference to it as a panacea for Brexit displays more about the ignorance of those evoking it than it tells us about what is actually required to keep one of the UK’s biggest tax paying industries alive and well and, more importantly, here.
A deeper and more meaningful approach would be to look at formalising an agreement within the Brexit negotiations on regulatory equivalence. As currently understood, and particularly thinking about the principles of the Norway model, this would leave us obligated to enforce all future EU law as it would pertain to financial services. In and of itself that would be unsatisfactory without safeguards to prevent future political moves from the EU27 that might deliberately target an industry of strategic importance to the UK.
Either way the industry needs to be more ambitious. It isn’t lacking in brainpower or creativity and it knows how to communicate when it wants to. However, “transition” reminds me of that weak phrase about “the orderly management of decline”. The UK’s financial services industry as a whole does not just need a transition phase so that contracts can be amended and institutions can salami slice their teams to fit a reality they weren’t prepared for. We need a vision for how the UK remains the EU’s financial capital whilst taking advantage of any new flexibility policymakers and regulators may have post-Brexit to attract more customers, more capital and generate more cash.