Post-Brexit, Britain's financial services sector relies on the kindness of Europeans. It needs Brussels to maintain the UK's access to the single market; it also needs the European Union to refrain from new rules penalising the City of London's financial district. Neither looks assured.
UK banks and asset managers are already in the Brexit hurt locker. Shares of both have fallen sharply, on fears that economic growth may reverse and business with Europe could crater. So-called "passporting rights", which let firms offer services without restriction throughout the single market, are at risk. To preserve them, the UK would probably have to guarantee the free movement of people - against many Brexit voters' wishes.
One fudge might be for the UK to gain equivalent status, as its financial regulation matches or exceeds Europe's. That is true in banking and will be for wholesale finance more generally once Mifid II regulation is implemented - which despite a delay should happen before the UK formally leaves the EU. The same applies to the latest iteration of a payment services directive, which would benefit UK-based fintech companies.
Yet no country has equivalence with the EU in all areas of finance. And while Europe won't want to kill off financial trade with Britain, it holds the whip hand: equivalence is something in the Commission's gift to deliver, but the European Parliament could ultimately veto Britain's overall exit package. Financial services commissioner Jonathan Hill's resignation on June 26 has shorn the country of one of its few Brussels representatives.
The EU will also be legally entitled to shift the clearing of up to an estimated 2 trillion euros worth of securities to the continent once the UK has quit. Even the most ardent of blockchain advocates would struggle to paint the associated migration of back- and middle-office jobs from London in a positive light.
Worse could follow. The UK's formal exit will mean that Brussels lawmakers can decide future punitive regulation with zero input from Britain. Many Brexiters understandably view financial services with suspicion after the fallout from last decade's crisis. But like it or not, the sector accounted for 11 per cent of total UK government tax receipts in the last fiscal year. The future of that government revenue now looks firmly in the lap of the EU gods.
