The U.K. government will seek the “freest possible trade” in financial services with remaining member states of the European Union following its exit from the political union.
In a white paper outlining information and proposals on the issue of Brexit, the U.K. government set out 12 principles for its exit. The paper follows a vote by Parliament on Wednesday, in which 494 members of Parliament vs. 114 voted to back a bill to trigger Brexit. The outcome of the vote allows Prime Minister Theresa May to formally inform the EU of the U.K.'s intention to leave, triggering Article 50 of the Lisbon Treaty.
The eighth principle is “ensuring free trade with European markets.” In that chapter, the government addresses financial services and said it is “an important part of our economy.”
The government said the U.K. “is a global leader in a range of activities, including complex insurance, wholesale markets and investment banking, the provision of market infrastructure, asset management and (financial technology).”
It acknowledged the passporting regime under EU regulation, which allows firms in member states to provide financial services across the EU under a common set of rules, and with a single authorization from a member state's domestic regulator. More than 5,000 U.K. firms use passports to provide services across the rest of the EU, and about 8,000 European firms use them to provide services in the U.K.
There are also third-country rules, which allow firms from non-EU countries to provide services across the union, provided their domestic regulations are deemed equivalent to those of the EU.
“In our new strategic partnership agreement, we will be aiming for the freest possible trade in financial services between the U.K. and EU member states,” the paper said. “In highly integrated sectors such as financial services there will be a legitimate interest in mutual cooperation arrangements that recognize the interconnectedness of markets, as so clearly demonstrated by the financial crisis.”
The paper also noted that the U.K. was ranked as the top financial center in the 2016 Global Financial Centres index, and that more than 75% of the other 27 EU member states' capital market business is conducted through the U.K.
Financial service providers in the U.K. also manage £1.2 trillion ($1.5 trillion) of retirement and other assets on behalf of European clients. “The financial service sector is an important part of the European economy, contributing significantly to the funding and growth of European business,” the paper said. “It is in the interests of the U.K. and the EU that this should continue in order to avoid market fragmentation and the possible disruption or withdrawal of services.”
The government will trigger Article 50 by the end of March.