Department for Exiting the European Union
Thank you David for that brisk introduction.
Now, many of you here today represent international companies, with footprints in countries around the world.
So its a privilege to speak in front of such great global companies in one of the worlds greatest capital cities.
This year, London was named once again the worlds top financial centre.
Beating New York, Hong Kong and Singapore and actually extending its lead.
As some newspapers would say, despite Brexit.
That position was cemented because of the hard work and dedication of all of you in this room, and people like you across the city.
Not just in 2017 but year after year.
And your hard work and business talent helps drive prosperity not only in London, not only in the United Kingdom, but across the whole of Europe.
Whether its the great banks with headquarters here, providing loans to European start-ups or clearing houses handling billions of pounds a day, to help businesses reduce their currency costs, work undertaken by the financial services sector in London and City of London supports jobs right across the country, right across the continent and right across the world.
So today, I wanted to spend some time talking about how we are approaching negotiations to leave the European Union and what we in Government are doing to help ensure that the City of London maintains this position, as the worlds leading financial centre throughout the process in a way that benefits both the UK and the EU.
There are many reasons why London has emerged as a great financial centre over the years.
English is the top commercial language of our time. Our transparent and strong legal system encourages companies to do business and invest with confidence. Traders benefit from our time zone, allowing them to link to and support other major financial sectors in America and Asia. And, as one of the few truly global cities London has for centuries attracted the best and the brightest to come here, to live, study and work.
This has helped create a self-fulfilling cycle.
Businesses invest here to be close to the financial services expertise and financial services companies base themselves here to be close to business, creating a huge critical mass of professional skills and talent that delivers lower costs, higher quality and drives innovation.
The success of financial services based here in London has benefitted not just the United Kingdom economy, but economies right across Europe.
And the stats back this up.
Last year 29bn of UKs financial services were exported to the rest of the EU that represents 12% of our total exports to the European Union. Its also significantly more than the 17bn we exported to the United States and the 1bn we exported to Canada.
Meanwhile, last year, the UK accounted for three-quarters of all foreign exchange turnover, almost two thirds of all private equity assets, well over half the global insurance market in aviation and energy and 85% of hedge fund assets in the European Union.
For Europe, London is a gateway to global financial markets. This isnt just the City of London its the first City of Europe, the primary financial centre for this continent.
When we leave the European Union in March 2019, we will not be leaving Europe. We want our exit to mark the start of a new partnership with our closest neighbours and trading allies.
And together with the European Union we must work to protect the key European asset that is the City.
Not doing so will impact the real economy and real lives across Europe.
Risks of fragmentation
So as we move towards the next phase of the Brexit negotiations and look to the future relationship we want with the European Union, we all need to be acutely conscious of one single, important fact.
This is not, a zero sum game.
It would simply not be possible to recreate, or duplicate, another leading financial centre in Europe.
As the Chancellor said in his Mansion House speech earlier this year, the huge prize for Europe is avoiding fragmentation of the financial services sector.
Hes right.
In reality, fragmenting clearing houses, or banking or insurance centres, would mean higher costs for European businesses, big and small. Businesses that depend on interconnected value chains across the world.
LCH is unrivalled in Europe as it handles 90% of cleared interest rate swaps globally and 98% of all cleared swaps in euros.
There are huge benefits for all involved from these transactions of economies of scale and of scope.
For instance, this single pool of liquidity makes it cheaper and easier for European airlines to guard themselves against fluctuations in oil price. And for farmers to protect themselves against interest rates moves in foreign markets on which they rely.
Ensuring these benefits can continue is a priority for us as we move ahead with Brexit negotiations, and we think it should be for the European Union too.
Because protecting the City and the contribution it makes to communities and economies right across Europe is a responsibility not just for the UK, but for Europe as a whole.
The road ahead
Of course the relationship between the UK and the EU must change after Brexit.
Voters in their millions took to the polls to ask for greater control over their money, their borders and their laws.
And we recognise that the single market is built on a balance of rights and obligations.
Staying in the single market, accepting the free movement of people and direct jurisdiction of the European Court of Justice wouldnt be delivering on the referendum result, because it wouldnt mean weve truly left the European Union.
But as we look for a new balance, a new relationship with our European partners, we cant lost sight of what we already have.
The decades of deep cooperation and integration, particularly across the financial services sector.
Over the past 10 years, Britain and other EU members have worked closely together to maximise the benefits of globalisation in financial services.
Together weve developed international standards to ensure financial stability and fair competition. And we have put systems in place to improve standards of supervision.
The Global Financial Crisis demonstrated the need for regulation that promotes responsible activity. And since 2008 the UK has taken a leading role, along with the rest of the European Union, to strengthen these regularly and supervisory regimes, to ensure financial stability, and protect taxpayers from having to step in, to deal with failure. So, after we leave the EU in 2019, its vital we continue to work together, to strengthen and improve the global financial system, for our mutual benefit.
The City itself has come up with some innovative ideas on possible new frameworks.
The International Regulatory Strategy Group, for example, has come up with a range of different approaches to future access, covering a whole range of ideas such as exemption regimes, and mutual access on the basis of regulatory alignment.
A relationship that should achieve three things.
It must protect financial stability.
It must ensure consumer protection.
And it must support the open and stable cooperative system we have built since 2008 for cross-border financial services.
Ill take each of these objectives in turn.
First on financial stability.
To make sure our new working relationship is stable, its vital that the European market doesnt turn inwards.
Legitimate concerns about cross-border financial services are not best met by localising risk management, or markets.
Instead, we must put in place systems that encourage trade, while reassuring all sides that their risks and concerns are recognised. That means the EU needs to have confidence in the City of London, as the bloc adjusts to the new relationship.
We will need a new process for establishing regulatory requirements for cross-border business between the UK and European Union.
It must be evidence-based, it must be symmetrical and it must reflect international, indeed global standards.
And cooperation arrangements should be reciprocal, reliable, and prioritise financial stability.
These arrangements should also be durable so that businesses know what their regulatory obligations are going to be, not only next week, but next year, and beyond.
Secondly, and similarly, we need to ensure continued protection for consumers across Europe.
The United Kingdom has been at the forefront of driving high standards in this area. Here, we have a world-class regime protecting people from mis-selling of products, of insider dealing and market manipulation.
Britain is committed to promoting regulation that addresses these issues and protects consumers from abuse. This was the case as an EU member and it will be the case after we leave.
So our first two objectives, should provide the basis for the third.
Continuing to cooperate with our European partners to maintain high standards, protecting financial stability and consumers. And leading the way in global regulation should provide a solid foundation for a continuation of cross border financial services in Europe.
In her speech in Florence the Prime Minister talked about areas of shared interest in our future economic relationship. And she drew an important distinction between areas where, in the future, it would be in both sides economic interests to meet those objectives via the same means, and areas where