TheCityUK’s response to the Balance of Competences Review – Single Market: Financial Services and Free Movement of Capital following submission to HM Treasury’s call for evidence

TheCityUK welcomes the opportunity to have provided evidence to the Government’s Review of the Balance of Competences between the United Kingdom and the European Union on Financial Services and the Free Movement of Capital, following HM Treasury’s call for evidence.

Chris Cummings, Chief Executive at TheCityUK said: “The City is not only the UK’s financial capital but also Europe’s financial centre.  The Balance of Competences Review provides a major opportunity for the financial and related professional services sector to offer policymakers evidence of the importance of EU membership and how it can best be developed for the nation’s benefit.  Last year the UK’s export earnings from financial services topped £61bn, the most ever recorded, a third of which went to other European member states.  While it is evidently the case that the European Union would work better if reformed, easy access to our major market is worth considerable value to the UK.”

Submission Summary

  • Access to the Single Market is vital to the continued success of UK-based financial and professional services firms.
  • European regulatory architecture needs to be coherent enough to be implemented at an EU level where appropriate, but flexible enough to allow national implementation to reflect local markets.
  • Proposed regulation needs to be subject to more rigorous cost benefit analysis and impact assessment.
  • Regulation needs to be properly targeted, and that requires policy makers and regulatory authorities to engage fully with the industry in an appropriate consultative framework.
  • Following the regulatory reforms introduced in response to the global financial crisis, policy makers need to enable financial services to support economic growth across the wider economy, across the whole EU.
  • The UK government needs to protect the integrity of the Single Market, as the banking union in the euro area begins to take effect.

Role of London as EU’s Financial Centre

TheCityUK’s response reviewed the vital importance of London as the EU’s financial centre. The creation and development of the European Union’s Single Market over the last 20 years has reinforced London’s long established position as the world’s leading international finance centre. Its pre-eminence, expertise and experience has helped in the development of the EU’s Single Market in financial services, particularly in wholesale markets and has meant that the UK has had considerable influence in EU regulatory developments, as well as a leading role in global regulatory discussions and developments.   
Against a background of the UK reflecting on its relationship with the European Union, our response to the submission highlights London’s role as the centre of euro-denominated markets. Major portions of the related market infrastructure located in London could be threatened if Britain were to leave the EU.  

Our submission said:

“The UK has an essential role to play within the EU to continue to make the case for open international capital markets, to influence the creation of a Single Rule Book, and to secure an appropriate completion of the Single Market in services. It should also champion a positive agenda for Europe, which will be essential in making Europe competitive in global markets and ensuring it is able to deliver the jobs and growth across the continent that everyone wishes to see.”

Regulatory Coherence

Given London’s role as Europe’s international financial centre, it was in the UK’s interest to see an internationally coordinated response to the global financial crisis.  It is too soon to tell whether the sweeping regulatory response to the global financial crisis has been proportionate and effective. From such major change, there is an inevitable risk both to the international coherence of financial markets and to economic growth. The EU has not acted alone in implementing major regulatory change. In many cases, the UK has led the way, being even tougher than other jurisdictions.  

There have been some regulatory initiatives originating in the EU that are misconceived and have potentially damaging and unintended consequences, which the UK Government and regulators have opposed. Examples are the proposed Financial Transactions Tax (FTT) and the CRD IV/ CRR restrictions on bank remuneration.  

Chris Cummings said:

“We want to see the UK re-establish its leadership position in developing EU financial services policy.  There are substantial changes to the regulatory architecture in areas such as Banking Union and unless the UK is actively involved we risk seeing our global pre-eminence lost.  Financial and related professional services employs over 2 million people across the UK, equivalent to the population of  Greater Manchester.  The UK can play a leading role in reshaping Europe making it more competitive, dynamic and open to international investment but only by active and sustained engagement at all levels across the EU.”

TheCityUK’s submission has been made with the Corporation of London through our joint International Regulatory Strategy Group and represents the views of the leading UK based firms from the financial and professional services sector.
TheCityUK welcomes the opportunity to have provided evidence to the Government’s Review of the Balance of Competences between the United Kingdom and the European Union on Financial Services and the Free Movement of Capital, following HM