UK-EU Relationship in Financial Services (European Affairs Committee Report)

Earl of Effingham Excerpts

Wednesday 17th May 2023 Grand Committee

[Earl Effingham (Con)]

My Lords, I thank the noble Earl, Lord Kinnoull, for raising this debate. I also highlight my interest, as noted in the register, as an employee of Birchstone Markets.

The UK holds a unique global position in financial services due to its time zone. Sitting in London, it is possible to capture the end of the Asian trading day, all of the European trading day and most of the American trading day. Notwithstanding an early start and a late finish to one’s work, no other financial centre in the world has the ability to provide that with relative ease. This puts the UK in pole position to help clients and win business on the global stage. It is an enviable position, which we need to do everything we can to maintain.

It is, of course, fair to say that far fewer jobs have moved to Europe from the UK than was envisaged in a worst-case scenario for the sector. However, it is important to note that the job transfer may not be over yet and to remind ourselves that, simply because the numbers are much lower than the worst-case estimates suggested, that is no reason to think that everything is fine and that we do not need to be vigilant. We should still be trying to maximize every opportunity available to us to ensure that the UK financial services sector remains competitive and attracts world-class talent and business, as it always has.

Indeed, when you look at the types of roles that have moved, it can be the sales and trading roles, or the client-facing banking roles, which are regarded as important within the sector and are one of the many types of roles that we would ideally like to keep here in the UK as part of our talent pool.

In a post-Brexit world, where banks and financial services firms were required in some cases to materially bolster their European operations from what may have previously been a small operation to a European hub, the ongoing movement of staff from the UK to Europe is likely to be required. The ECB has made it clear that it expects the highest levels of governance and risk management in third-country subsidiaries and that operations cannot and should not work on insufficient staffing levels. A little over a year ago, the ECB announced that 21% of the firms assessed by it in this category warranted targeted supervisory action. The ECB will continue to monitor the way that banks operate post Brexit and will require a strong local presence. This will continue to impact operating models and maintain the pressure to have key staff based locally, not in the UK.

It will also come as no surprise to your Lordships that many support jobs in banking and finance have already been transferred out of the UK and into Europe. This had already happened prior to 2016 as a result of companies being able to employ qualified professionals in Hungary, Poland and other European countries at a more competitive cost than in the UK. However, we could now well find ourselves in a situation where support jobs that may have also been destined for the UK find themselves being allocated to the centres in Europe. This will have a detrimental effect on our world-class financial services support businesses, which are located all around the country, be it Bournemouth, Birmingham or Glasgow, to name but a few places.

ESG is an area where there is a great opportunity for the UK to lead the way. Given the nascent rise of the sector and industry, the regulatory framework is constantly evolving and the UK can play a key role in shaping its future. We have all read with great interest the work being done to agree a mutual recognition arrangement for financial services with Switzerland. This could be the first of many and I hope that the Government can use it as a benchmark for agreements with other European states.

I believe the UK financial services sector is one we should all be proud of. I look forward to working with noble Lords on this important area.