The uk-eu relationship in financial services

Diverging from EU law may present opportunities for the UK’s 
financial services sector, and the Committee notes the sector’s 
positivity about pursuing these opportunities. Much of the inherited 
acquis was designed to cater to 28 countries, and Brexit provides an 
opportunity for the UK to innovate and to tailor the regulation of its 
financial services sector to reflect the UK’s own interests.
188. 
It is nonetheless vital that the Government balances the benefits of 
reform against the cost of implementing new rules, and that the sector 
is not now subject to a constant process of piecemeal change. Some 
239 
Q 42
240 
Ibid.
241 
Q 85
242 
Q 108
243 Written evidence from New Financial (
RFS0006
)
244 
Q 25

---

48
THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
pieces of EU regulation were unpopular with businesses when they 
were implemented but are now regarded by the sector as a sunk cost, 
further reform of which would impose an additional, unnecessary 
cost burden on the sector.
EU-driven divergence
189. The Committee also took evidence on the EU’s own plans for reforms to its 
regulation of the financial services sector. In some areas, these reforms reflect 
developments in the UK. As Stéphane Boujnah noted, “there are similar 
debates on the other side of the channel and in the Republic of Ireland”.
190. However, the EU’s own reviews are underpinned by its aim of wider ‘open 
strategic autonomy’, particularly in relation to the development of its capital 
markets, where it still relies on access to the market liquidity of London. 
Stéphane Boujnah noted that “we are now focusing on building the capital 
markets union and building strategic autonomy in competing against US-
based institutions”.
245
191. Stéphane Boujnah also noted that the UK’s exit from EU discussions 
and decision-making had changed the EU’s approach to the regulation of 
financial services:
“the fact that the UK is no longer round the table changes a lot when it 
comes to financial regulation … the main difference between the pre-
Brexit world and the post-Brexit world is that, in the pre-Brexit world, 
having London as the largest financial centre of the European Union 
was something like natural specialisation, and it was okay. Post-Brexit, 
Europe has to make sure that, within the European Union, there is full 
architecture, from a regulatory and an operating point of view, to allow 
for a situation where Europeans have some form of control over key 
pillars of the finance of EU economies … That is what open strategic 
autonomy is all about when it comes to financial services”.
246
192. Witnesses viewed this focus on strategic autonomy, and the emphasis on 
ensuring key elements of financial services infrastructure are located within 
the EU, as differing from the UK’s post-Brexit approach of developing an 
internationally open financial services sector. Some were worried that the 
EU’s approach could have adverse consequences; for example, Miles Celic 
of TheCityUK said he was “concerned that in the EU it is more about 
protectionism”.
247
Sir Jon Cunliffe argued: “If the whole world pursued 
strategic autonomy in financial services, we would lose a lot of the benefit of 
a global integrated financial system”.
193. Witnesses also warned that, as a result of Brexit, the UK’s ability to influence 
the future direction of EU regulation was diminished.
248
Caroline Dawson 
said that the UK had “lost a huge amount from not being able to influence 
that debate” in the EU, explaining:
“In terms of advocacy, it is a much more persuasive argument, if you 
are within the EU, to say, ‘We should be open to the outside world’, 
than being right on its doorstep and saying, ‘You should be open to the 
245 
Q 88
246 
Q 89
247 
Q 14
; see also 
Q 39
 (Peter Bevan).
248 Written evidence from New Financial (
RFS0006
)

---

49
THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
outside world’. Clearly, it is a very different argument. In terms of cross-
border business, that is clearly a lost opportunity for influence.”
249
194. The Committee asked the Economic Secretary about the impact of future EU 
regulatory changes on the UK, and whether the Government was taking any 
steps to influence the EU’s regulatory process in areas of concern, as other 
third countries do. The Economic Secretary seemed dismissive of the idea 
that the UK would seek to influence EU regulation, telling the Committee 
that he was “not the Financial Services Minister for the EU” and that, while 
he had had “pretty thorough engagement” with his EU counterparts, “we 
have left the EU … we are not part of the decision-making process of evolving 
EU directives.”
250
195.