Chief Executive's Insight - February 2016

On 19 February, the European Council agreed a new settlement with the United Kingdom. Our overall assessment is that the deal reflects many of the fundamental points we had identified in our EU reform work and lays solid foundations on which to build a stronger EU.

We believe those parts relating to competitiveness, the Single Market and the Euro area are well-balanced and cover the key issues raised by TheCityUK. The headline issues are that it:

  • renews the focus on competitiveness, including reducing the regulatory burden and pursuing an ambitious trade and investment policy
  • strengthens the Single Market, including for services, capital and digital
  • recognises and confirms the EU as a multi-currency union, with safeguards for non-Eurozone Member States against discrimination on the basis of currency or geography
  • ensures that non-Eurozone countries will participate in deliberations at the Euro Group meetings and their views should be respected, although they will not have a right to vote
  • confirms and recognises the UK's position outside "ever closer union", while accepting that the Eurozone may continue to formalise the links between its members.

Following this agreement, the date for a referendum on the UK’s membership of the EU was set for 23 June 2016. The Government has now issued its own assessment of the settlement, “The best of both worlds: the United Kingdom’s special status in a reformed European Union”. The referendum question will be: “Should the United Kingdom remain a member of the European Union or leave the European Union?”. As a reminder, TheCityUK is not campaigning in the referendum, nor will we be telling people how to vote. But we do have a role in providing evidence and explaining the consequences of the referendum outcomes and helping voters to come to an informed decision. We have also stated that the majority of our members have said that membership of a reformed EU and continued access to the Single Market are vital for the UK’s competitiveness.

I was pleased to hear the Prime Minister, David Cameron, during the debate in Parliament on the EU deal, quoting directly from our recent report EU reform: Detailed proposals for a more competitive Europe saying “The City is Europe’s financial centre and the UK’s membership of the EU is of strategic importance to the financial and related professional services industry". The Prime Minister continued "Business organisations covering finance, insurance, manufacturing and engineering are all making their views clear, and I think we should listen to them”.  You will have also seen our opinions in all major news outlets over the last few days including on Bloomberg TV, in the Financial Times, the Mail on Sunday and The Sunday Times.

TheCityUK will continue to engage policymakers both here and across the EU. We look forward to hearing from the Rt Hon David Lidington MP, Minister of State for Europe, on 9 March, in London. During this event we will be launching a new policy paper discussing the implications leaving the EU will have on financial and related professional services. There will also be a panel discussion with leading practitioners from the financial and related professional services industry, which will be chaired by Anthony Hilton, Financial Services Editor, Evening Standard, to discuss alternatives to EU membership and its implications for our industry.

We will then be back in Brussels on 15 March, where we will launch a new report; Retail Financial Services: bringing real benefits to Europe’s customers, published by the International Regulatory Strategy Group (IRSG), which we co-sponsor with The City of London Corporation. This report will help policymakers create the right policy and regulatory framework to ensure the industry can meet the changing expectations of its customers. It will present new evidence about the urgency of  addressing this issue to make sure Europe remains competitive and exploits the opportunities provided by disruptive and innovative technologies. The report will be launched by Mark Hoban, Chairman of the IRSG Council, and will include a panel discussion on the 20 proposals laid out in the report with Vicky Ford, Conservative MEP and Chair of the Internal Markets and Consumer Protection Committee (IMCO), Olivier Salles, Head of Retail Financial Services and Payments, DG FISMA, Dean Jayson, Financial Service Managing Director, Accenture and Miles Celic, Director of Group Strategic Communications, Prudential and Chairman of the Report Steering Group.

Recently we welcomed the decision by HSBC to remain headquartered in the UK - you may have read my comments on this in the Financial Times and City A.M. This announcement is a vote of confidence in London’s position as the world’s leading international financial centre. It’s clearly in the UK’s interests that HSBC, one of the leading global banks, remains headquartered here. At a time when other centres are fighting hard to attract business, HSBC’s serious consideration of alternative locations brings into focus the importance of short and long-term decisions by government to advance the attractiveness of the UK. To maintain this competitive advantage, it is critical that the Government continues its pursuit of policies that spur growth and support international trade and investment. This will continue to attract, as well as retain, business in London and across the UK.

Whilst the City plays a key role, UK competitiveness for financial and related professional services is as much about the regions and nations as it is about London. We have been partnering with UKTI on the Financial Centres of Excellence programme, promoting the contribution cities and regions around the UK are making to our industry. At these events we have heard from Harriett Baldwin MP, Economic Secretary to the Treasury & City Minister and James Wharton MP, Parliamentary Under-Secretary of State in the Department for Communities and Local Government with responsibility for the Northern Powerhouse. With two-thirds of financial and related professional service jobs based outside of London, you can see the impact our industry has throughout the UK with our new and updated digital interactive map.

Alongside the UK’s pre-eminence in financial and related professional services, the nation leads the way in FinTech, which supports over 61,000 jobs and generates billions in revenue for our economy. Its development has kept our financial services sector on the cutting edge of innovation, and has increased competition and choice in banking, helping customers and businesses to get better services. To help showcase the FinTech industry, this week we have been promoting HM Treasury's “FinTech Week”, where we hosted a roundtable discussion with Gwyneth Nurse, Director, Financial Services, HM Treasury, who discussed how industry and government can work together to grow the FinTech sector in the UK.

FinTech also featured in our submission to HM Treasury as part of our Budget representation. Although preliminary estimates showed the UK economy expanding steadily, at 0.5% in the fourth quarter of 2015, annual average growth for that year slowed sharply from 2014, and many forecasters expect a further moderation in 2016. The UK economy benefits from its strength in globally leading services; in the latest quarter (Q4 2015), services was the only sector to make a positive contribution to growth. On the basis of both its structural importance to the economy and its significant contribution to growth, the financial and related professional services sector has a crucial role to play in driving domestic and export-led growth. Because of this, and in light of the increasingly uncertain economic outlook, we offered the following policy proposals designed to facilitate the industry’s ability to maximise its positive contribution to the UK economy.

  • Proposal #1: Ensure that long term tax-policy supports wider policy objectives
  • Proposal #2: Emphasise regulatory certainty and procurement practice in infrastructure policy
  • Proposal #3: Work closely with the financial services industry to address the opportunities and challenges posed by increasing financial digitisation
  • Proposal #4: Prioritise policies that maintain the competitiveness of the UK’s labour force

Internationally, our work on the Transatlantic Trade and Investment Partnership (TTIP) continues with the twelfth round of EU-US TTIP negotiations taking place in Brussels on 22-27 February. TheCityUK has consistently pressed for regulatory coherence for financial services to be included in TTIP. Last week we made the case again, with EU and US business counterparts, in a joint statement to negotiators issued on 21 February 2016.