Financial Services in a post-Brexit world: fresh thinking from law firm CMS and the Legatum Institute Special Trade Commission

Law firm CMS and the Legatum Institute Special Trade Commission have come together to develop a proposal to deal with the implications of leaving the EU for the financial services sector. 

Their report is the first piece of work on financial services and Brexit to look at the context of WTO rules and free trade agreements, and the competitiveness in the sector more generally. CMS is the largest law firm in Europe, and brings its market leading expertise in financial services and regulation together with the trade expertise of the Legatum Institute Special Trade Commission, whose work has been shared at the highest levels of government.

The Key Findings of the Dual Regulatory Coordination report can be downloaded here. The full report is available to download here.

“We are aiming to move the debate away from terms that have an emotional element associated with them, such as passporting,” says Paul Edmondson, CMS’ head of financial services. “We say that post-Brexit it makes sense for EU regulators to place substantial reliance on the PRA/FCA to regulate UK financial institutions doing business around Europe. Similarly, it makes sense for the PRA and FCA to rely on their EU counterparts to regulate EU incorporated firms doing business in the UK.”

The report argues that coordinated regulation is the key, for businesses and the regulators. A complete loss of coordination at Brexit should be unthinkable. The question is how much will there be and in which areas. The answer should be as much as possible. The report says that without a system of coordination, there is a risk post-Brexit that firms doing business around Europe will have multiple regulators setting rules and supervising the same areas - potentially in different ways. In other words they will be subject to dual (or multiple) regulation, which is at the very least costly and inefficient. 

“The paper is the first to attempt an answer to the two critical questions in developing a viable strategy for financial services between the UK and EU post Brexit,” says Shanker Singham, Chair of Legatum’s Special Trade Commission. “First, how can divergence be managed, and second, how does the agreement deliver, in trade terms, market access, national treatment and a pro-competitive regulatory environment, by clarifying the prudential carve-out.”