Speaking to an audience at HSBC’s headquarters in London on Wednesday, the chancellor of the exchequer said the UK’s financial services industry was crucial to negotiations, describing it is an asset to Europe not just the UK.
He said he wanted to “challenge the assertion that financial services cannot be part of a free trade agreement”.
Hammond said: “A trade deal will only happen if it is fair and balances the interests of both sides.
“Given the shape of the British economy, and our trade balance with the EU27, it is hard to see how any deal that did not include services could look like a fair and balanced settlement.
“So I am clear not only that it is possible to include financial services within a trade deal but that it is very much in our mutual interest to do so.”
He said negotiations were not a zero-sum game, where any loss of market share in London is automatically a gain to another EU capital and warned of the significant additional cost to Europe’s businesses and consumers if the market was to break up.
Hammond said the real beneficiaries of fragmentation would be New York, Singapore and Hong Kong rather than European hubs such as Paris, Frankfurt, Dublin or Luxembourg.
He also noted how the UK manages €1.5trn of assets on behalf of EU clients and facilitates about two-thirds of debt and capital raised by EU corporates. In addition, 78% of European foreign exchange trading and 74% of European interest rate derivative trading takes place in the UK, he said.
“The consultancy Oliver Wyman calculates that the wholesale banking industry would need to find $30-50bn of extra capital if new regulatory barriers forced fragmentation of firms’ balance sheets,” Hammond added.
He admitted there are legitimate concerns over the legal framework and financial stability when the UK and EU become separate entities, but said the future relationship between the two will be underpinned by close regulatory cooperation and collaboration, as well as a legal framework.
Chris Cummings, chief executive of the Investment Association (IA), said the industry body supports the government’s ambition for a comprehensive free trade agreement to include financial services.
“This is essential to ensure that the millions of savers and investors our members serve across Europe continue to benefit from the UK’s investment expertise,” he said.
He added: “The IA agrees with the chancellor that any free trade agreement between the UK and the EU should be based on the concept of mutual recognition, rather than the current equivalence assessment. Maintaining market access in this way would be the most beneficial outcome for UK and EU savers alike.”
