Brexit and the financial services sector - plugging the gaps
Given its importance to the UK economy, there is much focus in the UK business community and in the UK Government on the financial services sector and how Brexit will impact on it.
According to UK Government statistics, the financial services sector employs more than 1 million people across the UK and contributes more than £127 billion per year to the UK economy and the financial services trade surplus is more than £61 billion. No small amounts!
In the Queen's Speech on 14th October 2019, it was confirmed that "steps will be taken to provide certainty, stability and new opportunities for the financial services [ sector]" by way of a new Financial Services Act.
The background papers issued by the Prime Minister's Office on the same day made it clear that the principal objects of the proposed Act are three-fold:-
- Simplifying the process which allows overseas investment funds to be sold in the UK;
- Implementing the so-called Basel standards to strengthen the regulation of global banks, in line with previous G20 commitments; and
- Giving long-term market access to the UK for Gibraltar-based financial services firms, in line with previous assurances.
The background papers go on to state that the Bill "will build on the extensive secondary legislation that the Government brought forward under the EU ( Withdrawal) Act 2018 [ (" the Withdrawal Act")] to ensure the effective operation of retained EU law, and thereby support the financial services sector".
In this context, the old familiar subject of "in-flight" financial services legislation , beloved of financial services sector "cognoscenti", has raised its head again with the publication of a letter dated 23rd October 2019 from the Financial Markets Law Committee ("the FMLC") to HM Treasury. This letter laments the loss of the quite separate Financial Services ( Implementation of Legislation) Bill with the prorogation of the UK Parliament prior to the recent Queen's Speech.
This Bill was designed to fill a hole in the Withdrawal Act by providing for the adoption into UK law of so called "in-flight" financial services legislation, which the FMLC explains in its letter means " pieces of EU financial services legislation that: (1) have been adopted by the EU , but do not yet apply so do not fall within the scope of the Withdrawal Act ...; or (2) are currently in negotiation and may be adopted within two years after exit day... ".
The FMLC argues that it is essential for this Bill to be "resuscitated" and updated with the current list of "in-flight" EU financial services legislation " so as to ensure continuity and certainty for the financial services industry". The FMLC points out that uncertainty over whether this "in-flight" financial services legislation will apply in the UK might well impact adversely on "any applications for equivalence under the EU's regulatory framework to which UK firms might be subject, post-Brexit, in order to obtain market access".
The UK Government has many Brexit-related pre-occupations at the moment but plugging the gaps in legislation affecting the financial services sector must surely be one of the higher ones if UK's pre-eminence in that sector is not to be severely damaged.
