There was standing room only in the grand ballroom of London’s Landmark hotel on Tuesday, as hundreds of investors, financiers and regulators gathered to hear David Davis outline his vision of what Brexit means for the City of London.
The Brexit secretary did not disappoint. He promised the City almost everything it has asked for and more, including a commitment to seek a quick deal on a transition period by next January and to secure a “durable” co-operation agreement for the long term on financial services with the EU.
Mr Davis even threw in an extra concession — announcing plans to introduce a special travel regime for professional services employees “to ensure that our new partnership with the EU protects the mobility of workers and professionals across the continent”.
Emphasising the UK government’s aim was to help ensure the City maintains its position as “the world’s leading financial centre” while Britain negotiates its departure from the EU, Mr Davis told the UBS European conference: “It would simply not be possible to recreate, or duplicate, another leading financial centre in Europe.”
The warm words delivered by Mr Davis to many of Europe’s financial services leaders were interpreted by some industry observers as a sign of growing alarm inside the government at the drumbeat of banks threatening to move jobs out of the UK.
One banking lobbyist said the Brexit secretary had “finally woken up to the threat that people are starting to move” jobs and activities to other European cities because of concern about both the lack of progress in the Brexit negotiations and the weakness of the British government.
However, Mr Davis’ comments still went down well with many members of the audience. “He gave people a sense that there is a grown-up in the room on the government side and showed that he really grasped the detail of the City and the minutiae of what he is fighting for,” said one person who heard the Brexit secretary’s speech. “He exuded confidence without being arrogant.”
Top of the City’s wish list on Brexit is to have a transition period after Brexit in March 2019 of at least two years to allow time to adjust to the terms of the UK’s exit from the EU. Several bankers have said that without a clear commitment from both sides to such a transition period soon, they will need to start moving jobs out of London by early next year.
Mr Davis acknowledged this time pressure, saying that he aimed to reach agreement by “very early next year” on a transition deal that would mean the UK “staying in all the EU regulators and agencies during this period, which we expect will be about two years”. He added that UK access to EU markets “would continue on current terms — including for financial services”.
Senior EU officials believe an in-principle deal with the UK is possible by December, which would see Britain agree to divorce terms at the same time as the bloc adopts “guidelines” outlining its conditions for a transition accord.
However negotiators on both sides admit the detail of a transition deal may take some weeks or months to negotiate, and in Brussels the expected timeline for a detailed agreement is closer to March rather than January.
Mr Davis meanwhile stood firm on the debate about whether clearing houses in London will be allowed to continue handling the vast majority of euro-denominated trades after Brexit.
French authorities, notably the Bank of France, have consistently warned that this situation will be unsustainable after the UK leaves the EU. But Mr Davis countered that “fragmenting clearing houses, or banking or insurance centres, would mean higher costs for European businesses, big and small”.
Pointing out that LCH.Clearnet, the clearing arm of the London Stock Exchange, handles 90 per cent of all interest rate swaps, he said: “This single pool of liquidity makes it cheaper and easier for European airlines to guard themselves against fluctuations in oil price. And for farmers to protect themselves against interest rates moves in foreign markets on which they rely.”
Arguing that it was as much in the rest of the EU’s interests as the UK’s to agree a long-term trade deal on financial services, Mr Davis said the government had three main objectives for such an accord. “It must protect financial stability. It must ensure consumer protection. And it must support the open and stable co-operative system we have built since 2008 for cross-border financial services.”
While the Brexit secretary’s speech went down well in the City, there was still some grumbling. “It is unbelievable that it has taken us almost 18 months just to decide our position on financial services, which is such a big chunk of UK exports,” said the banking lobbyist.
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