Chancellor Philip Hammond last night told City grandees he will help craft a “bespoke deal” for the UK financial services sector in Brexit negotiations, as industry voices continue to call for greater clarity on the details of any proposed transitional period.
In his speech to the UK Finance Annual Dinner at Mansion House last night, Hammond set out his ambitions for a transition period after March 2019, “during which the UK and the EU 27 will retain access to each other’s markets, and will operate a harmonised customs arrangement”.
This would likely avoid a ‘cliff-edge’ scenario that has spooked the City and businesses across the UK.
The chancellor said such a specialised deal would represent a “new paradigm” because “no existing trade agreement, nor third-country access to the EU, supports the scale of reciprocal trade in financial services that exists between the UK and the EU.”
But while he acknowledged there were "legitimate concerns" about the future of oversight, he was firm that the UK would not accept “protectionist agendas disguised as arguments about financial stability” - giving those concerned about the future of euroclearing a lifeline.
Hammond, who met with several business groups including the CBI, BCC and IoD earlier in the day, said: “It is my priority as chancellor to ensure that the UK remains the financial services centre of the world. And the global hub of fintech. We have the timezone, the language, the legal system, the talent, the capital markets, and the tech centre to succeed.”
His words come as the industry made fresh requests for the Department for Exiting the EU (DexEU) to release a financial services position paper, with many pointing to the end of year deadline as looming fast.
City of London Corporation policy chair Catherine McGuinness said: “It really is a crossroads moment for the City. For a host of firms they will be incredibly close to activating their contingency plans and deciding where they might locate their business.
“We desperately need clarity and an update on market access, transitional agreements and immigration policies.”
Lobbyist and executive chairman of Cicero Iain Anderson said: "What we need to understand is what the cabinet is shooting for here. The majority of the cabinet believes in transition, that much is clear, but what are they shooting for afterwards - that is what is making people most nervous."
The Institute of Directors’ deputy director of policy Edwin Morgan welcomed Hammond's comments, but urged for further clarity still.
“The chancellor is right to pay attention to our world-leading financial services industry in Brexit negotiations. Firms in the City will now be eager to know how the government plans to retain market access for them after Brexit, and crucially, how they will be able to get the right people in a very competitive market for talent," he said.
Meanwhile, UK Finance boss Stephen Jones called on the government, regulators and finance industry to come together to ensure the UK can maintain its status as a "global financial centre".
He said: "I am optimistic that the need for a proper transition period that is essential to underpin cross-border financing, risk management and trade is well understood by our government. I believe it is understood by our EU partners. The EU recognises the UK’s critical contribution to domestic EU capital raising, financing and risk management.
"Complex natural habitats renew – they do not die overnight when faced with change.
"This means coming together to find attractive and responsible ways to allow the financial services sector to continue to compete. We need constantly to re-enforce our credentials as the best equipped centre from which to conduct global financial services."
Hammond spoke hours after a Lords committee was warned that the EU Withdrawal Bill would raise "major issues" for the sector from exit day.
The bill would give the powers to "correct deficiencies" in EU law, which means equivalence could not be relied on, said Cambridge professor Eilis Ferran.
"We will already be doing surgery on the body of EU law, so we're not going to match on exit day," she said.