A leading financial lobby group in Britain has urged negotiators to take an “ambitious approach” towards a new trade agreement between the EU and the UK after Brexit.
The report by UK Finance, entitled “Supporting Europe’s Economies and Citizens”, acknowledges that past and current free trade agreements have often “fallen short” when it comes to the market in financial services.
But it argues that given the similarities between EU and UK regulations, it could be possible to create an agreement which would allow financial firms on both sides to continue offering services into each other’s markets after Britain leaves the union in March 2019.
The report as comes the UK government faces growing pressure to strike a swift deal with the EU in order to reassure firms and prevent a costly exodus of banks and jobs to the continent.
On Thursday, the UK's Brexit secretary David Davis outlined his hopes for a deal that "allows for the freest possible trade in goods and services".
In a speech in Berlin, he also said he thought it "incredibly unlikely" there would be no deal.
However, with Brexit talks in Brussels deadlocked over the issue of the so-called “divorce bill”, a number of banks have already moved ahead with contingency plans.
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Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup and Standard Chartered are just a few of the institutions which have revealed plans to shift some of their operations out of London as Brexit approaches.
They fear a loss of passporting rights, which enables lenders to sell their services across the 28-nation bloc. Once Britain leaves the EU, it is almost guaranteed to lose those rights, which will put UK based financial firms at a disadvantage if they wish to continue accessing customers and carrying out activities in Europe.
The report by UK Finance recognises that once Britain is outside the EU single market, it cannot continue to receive the exact same privileges of a single market member.
"The UK’s exit from the EU will transform the provision of financial services between the two parties from a relationship based on a deeply integrated EU single market finance supply chain to one based on trade between two separate jurisdictions," it says.
"For the tens of thousands of EU and UK customers and millions of financial transactions currently relying on cross-border services, this is a significant and potentially disruptive change."
It also acknowledges that in the past, free trade agreements have fallen short in the area of cross-border trade in financial services compared to the EU single market.
However, “the fact that the EU and the UK start from a position of complete regulatory convergence and deep market integration rather than on a third country basis makes the future partnership unlike any other existing arrangement,” the report says.
Urging an “ambitious approach”, the report’s authors suggest that it is possible to create a model for cross-border financial services trade after Brexit, while still allowing the EU and the UK to maintain their own separate regulatory regimes.
For such a model to work, a number of things must happen, the report argues. Firstly, there should be mutual recognition of the regulatory approaches of the two sides. And secondly, there needs to be a high level of regulatory and supervisory cooperation between the EU and the UK.
Ensuring that the trade in financial services can continue will also rely heavily on continued free movement of workers, the report said.
"All services are delivered by people, and the freedom of people to move between countries will often be integral to realising the kinds of commitments to open trade [mentioned in the report]."
It adds: "An EU-UK FTA should provide for comprehensive agreements on temporary movement between the two markets for business purposes, unless such short-term travel to, and temporary presence in, the other market is covered by a wider agreement between the EU and the UK on freedom of movement of persons between the two sides."
