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UK Economics

Brexit BOOST: City could use US model instead of EU passporting if Brexit talks collapse

TOP City executives say UK financial institutions could use an established US model to do business after Brexit if talks with the EU breakdown.

City of LondonGETTY

Top City executives say UK financial institutions could use an established US model


Speaking to a Lords EU Committee on Tuesday, Chief Executive Officer of the London Clearing House Daniel Maguire said that the City could use the ‘direct registration’ model to trade across Europe and the rest of the world once the UK leaves the EU.Currently, UK clearing houses – which process financial transactions – as well as banks and investment houses – use the EU ’passporting’ system to trade in Europe – an avenue that will be closed off after Brexit.The City’s favoured alternative is ‘equivalence’, which allows foreign finance institutions to operate within the EU if their home regulation is judged to be equivalent, or as good as the EU’s – or if they agree to abide by certain rules.

Currently the EU recognises financial institutions in 32 countries as ‘equivalent’ to its own, including the US, Australia, Canada, Hong Kong, Japan, India, Brazil, South Africa and Mexico.

Addressing Lords’ concerns over the ability of UK financial firms to trade both inside and outside of the EU after March 2019, Mr Maguire said that, while desirable, equivalence was not the only option.He said: “Right now equivalence is the status quo and by exiting the EU, we are no longer bound by EU rules [and so no longer equivalent]. [But] if we look to the US, it has something called direct registration.

SydneyGETTY

Currently the EU recognises financial institutions in 32 countries including Australia


Canary WharfGETTY

The City could use the ‘direct registration’


“Direct registration is on an operating level rather than a jurisdiction level. These two things interplay and in the US you can have either/or.“The London Clearing House has this in Canada, Australia, Japan and many other jurisdictions – that gives the ability to operate regardless of equivalence.”Despite offering this ray of hope, however, both Maguire and Simon Puleston Jones from the Futures Industry Association warned Lords that a deal with the EU would be the best way to safeguard jobs in the UK financial services sector – currently the biggest in Europe and the fourth largest in the world.

Mr Puleston Jones said: “Until we know what the outcome will be it’s very difficult to start planning what the infrastructure will look like. We need a period of time to make the adjustments, to look at the new regulation.

“If we don’t have certainty people will start to make decisions and the trains will start to leave the stations, and it will be very hard to pull that back.”On the derivatives market, both Mr Maguire and Mr Puleston Jones were more upbeat, stating that the London has a strong position in the more internationally focussed marketplace:Mr Maguire said: “The derivatives market is a global market that has a lot of global regulation and a high level of global co-operation thanks to legislation like the Dodd Frank [Wall Street Reform] Act that came out of the US after 2008.

“The UK is one of the premier jurisdictions for global derivatives clearing and we have a place at the top table.”

https://www.express.co.uk/finance/city/870997/Pound-V-euro-GBP-exchange-rate-rallies-UK-GDP-beats-expectations

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