Brexit: financial services report debated by Lords
03 February 2017
On Thursday 9 February, the House of Lords debates the Committee’s report on Brexit and financial services. The report examined the likely impacts of Brexit on UK financial services and sought to identify issues that the Government will have to contend with as it attempts to reach deals on the UK’s withdrawal terms and its future relationship with the EU.
The financial services industry constitutes around 7% of UK GDP, directly employs 1.1 million people, two-thirds of them outside London, and contributes a significant proportion of tax revenue. Avoiding major disruption to this industry and the resulting job losses should be a high priority in the Government’s negotiations on leaving the EU.
The report highlighted the importance of agreeing a transitional period for financial services, so that a 'cliff edge' is avoided. It found that the third-country equivalence provisions in EU legislation are not a substitute for the passporting arrangements, which UK-based firms can currently use, as they are patchy and vulnerable to political influence. The Committee also concluded that the wider EU economy relies on the financial services currently provided in the UK, which may not be easily replicated elsewhere in the EU: it would be in the EU’s interests to preserve access to its market for UK-based firms.
Main conclusions of the report
- London is the world's leading financial services centre, it is closely followed by New York. Other European cities are far behind. Any attempt to unpick London's highly developed financial services ecosystem could result in much of the business lost by the UK relocating to New York or other financial centres outside the EU, rather than the EU
- There is a chance that the UK will lose the ability to clear euro-denominated transactions following Brexit. But it is unlikely that relocation of the business to the Eurozone would provide the benefits to the wider EU economy currently provided by clearing in the UK. New York could provide such benefits, but if the business moved there, the EU would not benefit from repatriating the business
- Some firms do not themselves appear to be aware of their reliance on current passporting arrangements. It would be in the interest of the firms themselves, as well as in the national interest, if they were to work with the Government and regulators to determine the true extent of such reliance
- The UK financial sector employs 1.1 million people, of whom around 60,000 are EU nationals and 100,000 non-EU nationals. The ability to access highly-qualified staff and easily transfer them between the UK and the EU is a key issue for the financial services industry. This is even more important for the FinTech sector, which relies heavily on talent, including entrepreneurial talent, from overseas.
Baroness Falkner of Margravine, Chairman of the EU Financial Affairs Sub-Committee, will open the debate on the report Brexit: financial services.
Baroness Neville-Rolfe, Commercial Secretary to the Treasury, will respond for the Government.
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