The UK should be able to strike financial services “passporting” deals beyond Europe, allowing the City of London to offset lost access to the EU single market post-Brexit, according to the chair of the Commons Treasury select committee.
“Passporting applies with the EU and that will end with Brexit,” Nicky Morgan told the Financial Times. “But why couldn’t passporting apply to other countries around the world that share our high regulatory standards?”
She was speaking ahead of the Treasury committee on Friday launching an inquiry into the future of the UK’s financial services industry after Brexit.
The committee said it would examine “what the government’s financial services priorities should be when it negotiates the UK’s future trading relationship with the EU and third countries”.
Passporting is a crucial mechanism in the current UK-EU relationship, allowing finance companies to sell their services from one member state right across the bloc.
The City has become the dominant hub for such sales but it is braced for the end of passporting when the UK leaves the EU, and long term market access arrangements between the two sides are due to be thrashed out as part of a future relationship agreement.
Ms Morgan said the Treasury committee’s job was “to hold regulators and the City to account but also to highlight the City’s challenges and opportunities”.
“We need to remind government of how important financial services are to our economy,” she added.
City figures welcomed news of the Treasury committee’s inquiry, after months of frustration at prime minister Theresa May’s stance, both towards business and over what is at stake for the City as a result of Brexit.
Miles Celic, chief executive of The CityUK, an umbrella lobby group that represents banks, asset managers and insurance companies, said: “It’s absolutely right that the [Treasury committee] is looking at this. It’s crucial that parliament, government, industry and regulators work together.”
Until last summer, the government and the City had been united in pushing for a post-Brexit financial services regulatory regime based on a concept dubbed “mutual recognition”.
Under these market access arrangements, the UK and the EU would recognise each other’s rules covering finance companies, but there would be room for the two sides’ regulation to diverge.
But after pushback from Brussels, the UK and EU finalised a political declaration on future relations last November that proposed an “equivalence” regime that would ensure market access only if the two sides’ rules remained broadly aligned.
This angered many in the City, including some UK regulators who feared becoming Brussels’ “rule-takers”.
The Treasury committee’s inquiry came as the UK and Switzerland signed an agreement to allow their insurance companies to access each other’s markets after Brexit.
The relationship is currently governed by a deal between the EU and Switzerland that will cease to apply to the UK after it leaves the bloc.
The new deal, struck between chancellor Philip Hammond and his Swiss counterpart Ueli Maurer, replicates the EU agreement by allowing for mutual recognition of insurance regulation between the UK and Switzerland.
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