21 March 2018

  |  CBI Press Team

Speech

A historic handshake: what transition means for business

Following the news that a ‘status quo’ transition deal is to be announced at this week’s European Council, CBI Director General Carolyn Fairbairn spoke at the Bloomberg Capital Markets Forum on what this means for the financial service sector.

A historic handshake: what transition means for business

Introduction

Thank you.

It’s great to join you at Bloomberg this morning.

Can I just take this opportunity to thank Bloomberg for your powerful and committed coverage of the world of business and finance?

It’s never been more important, and the CBI is delighted to work so closely with you.

And it’s nice – for once – to arrive at a speaking engagement on foot.

The CBI’s offices are just across the street.

We’ve watched this building rise from the ground.

It really is a remarkable place.

How many company headquarters come with a basement temple to the bull-God, Mithras?

Let’s hope it augurs well for many future bull markets in the City of London.

In fact, during construction here, archaeologists uncovered a 2,000-year-old Roman contract.

London’s earliest known financial transaction.

Proof that not only do the roots of finance run deep here, but that from the earliest beginnings, London has been part of a European financial system.

And from those beginnings, grew this country’s capabilities as a true world leader in finance.

Today, financial services generate £120bn a year for our economy.

And of that, £28bn is accounted for by trade with Europe.

So, Europe really matters to financial services.

And, conversely, UK financial services matter greatly to Europe.

That’s why, this morning, I would like to talk about the progress we’ve just seen in the Brexit negotiations - and what it might mean for business.

It’s a story that began on 24th June 2016.

The day after the referendum.

With the dust still in the air, we began to receive calls, emails and texts from CBI members from all parts of the country, businesses of all sizes.

They were asking three things.

  • What’s the timetable?
  • What will happen to the EU citizens with whom we live and work?
  • And what will our future relationship with the EU be?

Three very good questions.

And of course, no-one knew any answers.

But the flow of conversations that Friday became a flood, leading to 21 months of conversations with thousands of businesses across the UK.

And though we still didn’t have answers, we did start getting something that was essential to finding them.

Firms gave us evidence.

Evidence of the action businesses would be forced to take in the event of a cliff-edge exit.

Evidence on the importance of EU citizens to UK firms.

Evidence on what our relationship with the EU must look like if we are to preserve prosperity and jobs.

And we were able to use that evidence.

In our conversations with the government and others in London, Brussels and across the European Union.

And it led the CBI and business last summer to start our call for a status quo transition.

For the UK to remain in the single market and customs union until a final deal was ready to be implemented.

At the time, we called it common sense.

At the time, Brussels and London both said no.

But support gathered.

Evidence was presented.

Business was listened to - by both sides.

And on Monday, the transition period business needed was agreed in principle.

Proof that progress can be made based on evidence, not ideology.

There will be a phased exit from the EU – not a cliff-edge drop.

EU citizens in the UK will have the right to remain here and the same for UK citizens in the EU.

And we do now have some clearer indications of what the future EU/UK trade relationship might look like, from this week’s progress and the Prime Minister’s Mansion House speech earlier in the month.

So Monday was a historic handshake, with real and immediate consequences.

A quarter of our members with Brexit contingency plans told us they would trigger those plans in March if no transition was agreed.

As long as we get the rubber stamp on Friday, many will now pause those plans.

EU firms with supply chains into the UK will be equally relieved.

It’s a win for common sense that will unlock investment.

Green shoots, you might say, in chilly times.

But, of course, we’re not there yet.

The risk of no deal remains.

For financial firms, this is a real problem.

Only legal certainty will be enough.

You can hope for the best.

We all do.

But you must plan for the worst.

That’s understandable.

Pharmaceutical companies, also heavily regulated, share your concerns.

But it means we need unambiguous and watertight legal certainty as soon as possible.

And, in the meantime, regulators across Europe should plan on the basis of transition – rather than a cliff edge.

That transition agreement will hopefully be reached by the end of the week.

It will give firms the certainty they need.

Again, it’s common sense.

But even then, there remain serious issues to be resolved with the withdrawal agreement itself.

We’ve all seen the legal text the Commission produced.

Green highlights for what’s been agreed.

Yellow highlights for ‘nearly agreed’.

And no highlights mean: ‘not yet agreed’.

There are too many paragraphs with no highlights.

Issues with no resolution.

The most serious is the Irish border

There’s firm commitment in the draft agreement to avoid a hard border between Northern Ireland and the Irish Republic.

This is absolutely right; a goal that supports not just jobs in the thousands of firms who trade daily across that border, but also peace.

We know technology on its own won’t solve the problem.

And there is currently no solution on the table that does.

So we need government to bring the same pragmatism to this vital issue as they have to transition.

And until a workable solution for a frictionless Irish border can be implemented, we believe the UK should remain in a customs union with the EU.

Now, there may come a day when the opportunity to set independent trade policies outweighs the value of a customs union with the EU.

But that day has not yet arrived

So let’s not get ahead of ourselves – on any front.

We need to lock down transition, and then we need a sensible final deal.

This is not yet the moment to open the champagne.

But it is perhaps the moment to pour ourselves a fortifying gin & tonic, and lift our sights to next stage.

And one of the most important questions is how we get the right deal for our extraordinary service sectors.

Services account for 80% of our economy and 40% of our trade.

We must get this right, at three points above all.

  • Regulation
  • Data
  • And people.

So let me touch briefly on all three, starting with regulation.

introduction

Regulation

For financial services, it’s hard to overstate its importance.

We need deep and continuing regulatory co-operation with the EU.

For an economy that exports £28bn in financial services to the EU every year, an agreement with the EU on the rules really matters.

Some of the regulatory challenges are especially urgent.

For instance, the need to agree that cross-border financial contracts will remain valid after Brexit day.

Today, regulators on both sides uphold the standing of these contracts.

But without agreement, at the stroke of midnight on 29 March 2019, we may find ourselves in unprecedented legal limbo.

Companies with cross-border contracts may have to choose between breaking those contracts, and breaking the law.

Now, it shouldn’t be difficult to resolve.

Companies and citizens on both sides need assurance that regulators will uphold contracts already in place.

That should happen fast.

And then that spirit of regulatory co-operation must persist beyond 2020.

The leaked negotiating guidelines on the future economic relationship from the Commission suggest that the door is open to a form of enhanced equivalence.

This is a welcome step in the right direction.

But we must go further.

Both sides must consider an ambitious deal based on mutual recognition and regulatory cooperation.

It is in our joint interests to do so.

For instance, there’s no reason why UK experts couldn’t maintain relationships with EU regulatory bodies.

Such as:

  • The European Banking Authority
  • The European Securities and Markets Authority
  • And the European Systemic Risk Board.

This might sound novel.

To some, it may even sound like cherry-picking.

But actually, it’s nothing new.

There are many precedents.

Iceland, Norway, Switzerland, Liechtenstein, Monaco and San Marino all participate in the European Payments Council.

All with an equal voice and standing.

There’s no reason the UK can’t make a similar contribution to EU agencies in future.

In fact, there are a dozen EU agencies that have some form of participation from non-EU countries.

And that’s the case the CBI will continue making.

Again; time for more pragmatism, fewer red lines.

regulation

Data

Co-operation of this kind will help financial services companies in the UK and EU.

But the final deal must also acknowledge how the financial services are driving entirely new forms of trade.

This building is itself proof of the ever-growing importance of one new form of trade in particular: the trade in data.

Because where trade was once measured by the tonnage of ships on the seas, it’s now also measured by terabytes in cables under the seas.

Supporting e-commerce, cloud computing, transactions of every kind.

In fact, the data trade now has a greater effect on GDP growth than the millennia-old goods trade.

It’s the basis of service economies everywhere.

And, today, three-quarters of the UK’s data flows are with EU countries.

Those flows support a data economy worth a quarter of a trillion pounds.

This data economy is possible because the UK and EU data protection rules are the same.

The rules are designed to allow data to flow without unnecessary barriers, while protecting individuals.

But outside the EU, the UK will no longer automatically be deemed to meet data protection standards

Unless, that is, the European Commission determines otherwise.

Only then will data flows resume without unnecessary friction.

There’s no reason why this can’t be achieved.

Countries like Canada and Israel have already been through the process.

We’re already aligned with the EU.

We have some of the best data practices in the world – and everyone’s interested in how we can make them better still.

We all understand how vitally important data standards really are.

But achieving this kind of agreement takes time.

On average, between 1 and 3 years.

So work must begin now.

data

People

My final theme is people.

And this is the human story.

A story with 5 million characters.

A story of lives lived.

People working.

Paying taxes.

Contributing to communities.

On both sides of the Channel.

They’re those for whom the Brexit debates are not merely about politics or business.

But about lives called into question.

Now, I was greatly reassured by the progress on Monday.

It is a big step closer to ensuring EU citizens who arrive here before transition can stay on the same terms.

But we must now turn to the future.

We have a chance to shape an immigration policy that works for jobs, living standards and prosperity.

And financiak services have much at stake.

I’d be surprised if there was anyone here who doesn’t work alongside European colleagues.

They bring market knowledge.

Cultural understanding.

And native language skills

They help us succeed in the EU - our single biggest market.

And we’re all the richer for it.

So our message now will be: surely we can agree on a preferential treatment for EU migration.

That does not mean giving up control.

But it does mean attracting the talent we need in the UK.

And it will allow financial services to continue to thrive.

people

Conclusion

So, in conclusion, it really was encouraging to see the progress made on Monday.

The areas I have set out today are where we must make progress next.

Locking-in transition.

Regulation.

Data.

And people.

That’s what the CBI will be talking about to governments here and in Europe.

And Monday’s agreement should give us all renewed confidence.

That a sensible deal is possible.

So this country’s financial sector, one of the oldest and best in the world, will continue to trade and to thrive – here and abroad.

Thank you.

conclusion

Expand all

Collapse all