Britain’s Financial Services Business Is Divided Over “Equivalence”

Britain’s Financial Services Business Is Divided Over “Equivalence”

February 6, 2021, The Economist

In the final weeks before Britain struck its Christmas Eve trade agreement with the European Union, Boris Johnson employed a euphemism for a no-deal outcome: he called it an “Australian-style” relationship. The agreement was sealed, to the relief of Britain’s manufacturing sector, but for financial services—the country’s core competence and dominant industry, which makes up 7% of its GDP—the outcome was sub-Australian. The EU recognizes Australian rules as broadly equivalent to its own in 17 different areas, compared with only two for Britain. It is now easier to sell many financial products to clients in the eu from 10,000 miles away in Sydney than from across the Channel. “You just can’t imagine the Germans throwing the car industry under the bus like that,” laments a British asset manager.

The causes of the government’s neglect of the financial-services sector—which probably include a general hostility to bankers, fury at the generous application of taxpayers’ money to the industry after the financial crisis and a belief among politicians that the City can look after itself—are obscure, but the consequences are clear. Between the Brexit referendum in June 2016 and the end of the transition period at the 2020, around 7,500 jobs—5% of financial-services employment—and over £1.2trn ($1.6trn) of assets moved from Britain to European financial centers according to EY, a professional services firm. That may be an underestimate, as EY tracked only larger firms; and more may go. Under “target operating models” agreed with European regulators, many firms have promised to shift more jobs to the continent by the end of 2021.

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