While Brexit harms the United Kingdom first and foremost, it will also impact the European Union. Whether it’s a soft or hard Brexit, financial services and consequently London’s role as European financial hub are brought into sharp relief, and constitute a key bargaining chip for the UK.
In response, the EU is monitoring the risks related to Brexit’s impact on financial services, listening to relevant stakeholders and undertaking an economic impact assessment to ensure as smooth a transition as possible. This was the conclusion of Friends of Europe’s event “Brexit and Financial Services – Priorities, Promises and Practicalities” held under the Chatham House Rule on 6 February.
While the UK’s position on the outcome of Brexit negotiations is unclear, the importance of preparation by EU in terms of transition and scenario planning was emphasised.
“The financial services industry has to prepare for all possible scenarios. No one can guarantee that there will be a transition period, or even a final agreement,” one of the participants noted.
The question of treating the UK as a ‘third country’ under the EU law post-Brexit also provoked several arguments. Whether it would be “politically acceptable” for the UK to enter an agreement that would not include access to financial services and whether the EU should reconsider its position on “zero tolerance to divergence” in terms of legislation remain to be seen. A suggested ‘pay to access model’ to financial markets was refuted, however, given it would mostly benefit financial institutions at the expense of European citizens.
Whilst the UK has suggested that there are alarm bells for companies on the continent concerned about access to UK markets after Brexit, there was a view that this is not the case in EU27 camp. It would appear that the EU has the necessary tools, such as the equivalence system, to mitigate the risks caused by Brexit on the financial services sector, and the main focus will continue to be on EU27 and its future.
“Brexit has impact across the board, and across the board the impacts are negative,” one participant summarised.
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