Daily Brexit Update – 11 January 2021

Sunak says Brexit will ‘reinforce’ City as world leading financial centre – FT

  • Chancellor Rishi Sunak on Monday told MPs Brexit will help “reinforce the UK’s position as a globally pre-eminent financial centre”, in spite of what threatens to be a protracted regulatory stand-off with Brussels. Government officials admit they do not expect the EU to make life easy for the City in the coming months, and debate is accelerating in the industry and among policymakers on how to reshape Europe’s biggest financial hub.
  • The EU has refused to grant “equivalence” rulings to most sectors of Britain’s financial services industry — a designation that recognises the quality of UK regulations and aids cross-border sales. Although the EU and UK agreed in the Brexit trade deal to draw up a memorandum of understanding by March on regulatory co-operation, that does not guarantee Brussels will issue equivalence rulings.
  • One ally of Boris Johnson said the EU had been “playing games” on the issue in an attempt to lure more jobs from the City of London to financial centres on the continent including Paris and Amsterdam. On the question of when Brussels might certify British regulations as equivalent to its own, the ally said: “It would be wrong to assume that it’s guaranteed or that it will happen on a prescribed timetable”.
  • Mr Sunak told MPs in the House of Commons that the conclusion of the Brexit process would now allow Britain to “start doing things differently and better” in terms of regulation.
  • But Mr Johnson has admitted his EU trade deal did “not go as far as we would like” on financial services — which generally were largely ignored — and his allies admit things are not likely to improve in the near future. Although many in the City regard Mr Johnson’s deal as effectively a “no deal Brexit” for the financial services sector, Mr Sunak has claimed that new regulatory autonomy in London could give the sector a boost.
  • Many companies anticipated the rupture on January 1 and moved staff and operations to EU centres many months ago to allow them to continue serving their clients there. Accountants EY estimated that £1.2tn in assets had been transferred to the EU, and some 7,500 jobs, before the end of the transition arrangement on December 31.
  • Mr Sunak believes that nimbler regulation of the City could allow it to develop as a centre for emerging industries, whether with green finance or new listing rules to support new technology companies.

City of London’s Plight Laid Bare as Brexit Deal Hopes Fade – Bloomberg

  • Just over a week in, the City of London is coming to a hardening realization about its post-Brexit future: a financial services accord with the European Union may be too little, too late to protect its dominant position.
  • Negotiations are set to kick off soon to determine the outlines of regulatory co-operation between the U.K. and EU, after the industry was largely sidelined in the trade deal that marked Britain’s split from the EU on Dec. 31. A March deadline has been set and so far details — including who will head up the discussions — are scarce.
  • The early days of Brexit have laid bare the stakes: London lost 6.3 billion euros ($7.7 billion) in daily stock trades to EU venues on Jan. 4, the first business day after the transition period. The overnight loss added impetus to calls by financial firms and London’s stock exchange to policy makers to ease rules and help the City get a competitive edge over European rivals.
  • One such move emerged over the weekend, with the U.K. Treasury saying it plans to allow trading in Swiss shares, reversing an EU ban on the activity. London’s ability to offer trading in firms like Nestle SA and Roche Holding AG will help compensate for some of the loss in EU shares. But the stance also deepens the U.K.’s division with the EU, making the bloc less likely to offer market access.
  • Those talks — centered around a principle called “equivalence” — are open-ended, without the deadline that governed the trade deal. Little progress has been made on the majority of areas.
  • European officials have little incentive to hammer out an agreement while financial hubs from Paris to Amsterdam win business at London’s expense. Bank of England Governor Andrew Bailey sounded a downbeat note last week, saying access to the bloc must not hinge on Brussels dictating standards.
  • While dramatic, the loss of EU shares is unlikely to have a discernible impact yet on the tax generated by the business in the U.K., which was more than 3 billion pounds last year. But it was an immediate warning of the potential costs of Brexit. As a whole, the Square Mile accounted for about 75 billion pounds in tax in 2019, including employment taxes, according to the City of London Corporation.
  • Bankers and asset managers said the week was otherwise largely disruption-free. That was due to years of preparation by firms, some of which involved moving business — although less than initially feared — out of the U.K. Firms like JPMorgan Chase & Co. and Goldman Sachs Group Inc. have already shifted scores of jobs and hundreds of billions of dollars in assets, while asset managers including Janus Henderson Group Plc and Standard Life Aberdeen Plc are using funds in Luxembourg and Ireland for clients inside the bloc.
  • Still, that leaves firms saddled indefinitely with the added complexity and cost of supporting operations in both London and the EU. Others such as Hargreaves Lansdown Plc have decided to stop marketing to European customers.

N Ireland shoppers face empty shelves as Brexit snags supply chains – FT

  • Supermarkets in Northern Ireland are struggling to fill their shelves because of the new post-Brexit trading arrangements, with hundreds of products caught up in supply-chain delays. Marks and Spencer, Sainsbury and Tesco have all been hit with new red tape and customs paperwork introduced following the end of the Brexit transition period on January 1.
  • The new rules are part of the Northern Ireland protocol — the mechanism agreed by the UK and EU in 2019 to avoid a hard border on the island of Ireland. Under the protocol, Northern Ireland continues to apply EU internal market and customs rules to maintain frictionless trade over the land border with the republic. This means vast volumes of new paperwork are required to process Irish Sea checks on shipments from Great Britain to the region. The extra red tape has left many food suppliers facing lengthy delays on shipping goods to the region, resulting in empty shelves for time-sensitive products like fresh fruit and vegetables and chilled meat.
  • Glyn Roberts, chief of Retail NI, an industry group in the region that represents 1,800 independent retailers and wholesalers, said a “huge amount of Brexit bureaucracy” had caused considerable supply chain problems for Northern Ireland’s retailers. “I think at the end of the day it will collapse into place but these next few months are going to be critical,” he said. “Ultimately this is not the wonderful land of milk and honey promised by the people who campaigned for Brexit but we’ve got to make the best out of a bad situation.”
  • The problems have led to criticism of Boris Johnson’s government from the pro-Brexit Democratic Unionists, who opposed the protocol because they wanted Northern Ireland to leave the EU on exactly the same terms as the rest of the UK.
  • M&S has had to pull roughly 5 per cent of its range from shelves in Northern Ireland temporarily to minimise risks of lorries becoming stuck due to missing paperwork. The retailer said it was looking at options to source more products locally. Sainsbury has adopted the unusual practice of stocking some locally sourced Spar-branded food in its Northern Ireland stores in a bid to maintain continuity of supply. The chain said “a small number” of products were temporarily unavailable in Northern Ireland “while border arrangements are confirmed”.

 

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