Leaving the EU: Financial Services

Debate between Kirsty Blackman and Robert Neill

Thursday 3rd November 2016 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

Members may be surprised to discover that I am not going to focus on what happens outside the City of London. It is important to talk about the City of London, and not just the areas outside it. What happens in the City of London benefits the whole of the UK’s economy. Whether or not Scotland is independent by the time that Brexit happens, it will still be really important for us that there is a strong financial services structure in the UK.

[Robert Neill]

Will the hon. Lady give way?

[Kirsty Blackman]

Not right now; I do not have much time.

I have a couple of points to make, starting with the issue of capital flight and passporting, which has been widely mentioned. As the hon. Member for Leicester West (Liz Kendall) said, passporting is important because banks have to make these decisions now. They have to make them today. They cannot wait for the Government to mess about while they come up with deals on Brexit. The structural decisions have to be made now, because it takes a number of months and years for these things to happen. Banks do not have the luxury of being able to wait until two years down the line when the Brexit negotiations are concluded to discover whether or not there is a cliff-edge at that stage. They need to make those decisions now. When we hear that the Government are not going to give a running commentary, it means that banks have to take those decisions now, and it is disadvantaging the whole of the UK as a result.

I understand that it is difficult for the Government to provide certainty. They do not yet have certainty even on what language the negotiations will be conducted in, let alone anything else about them. It is unlikely that we will reach a position where we have certainty by the end of the two-year period. That is why organisations such as the London Market Group are suggesting that what the Government need to do as a matter of urgency is to agree transitional arrangements. It represents insurers, who generate over 20% of the City of London’s total income. What it says they need is financial regulatory certainty and transitional arrangements for five years post-Brexit in order not to severely disadvantage the insurance industry. Five years post-Brexit is a very long time, and the Government have not given them any certainty at this point in time.

Clearing is the other really important issue that I want to talk about. The London Clearing House is a huge success story for the City of London, and it has become very important. Clearing is the process through which risk in the financial markets is managed. It catalyses growth by helping to manage that risk, and it is central to the UK’s delivery of the G20 post-crisis legislative framework. Our financial markets are less risky and better regulated as a result of having so much of the clearing house function based in the UK.

There are conversations about euro-denominated currencies moving from London, but we will lose not just euro-denominated currencies. The London Stock Exchange Group and the London Clearing House work in 17 currencies, and the only reason the London Clearing House has such a large market share and is so successful is its access to all those currencies. If euro-denominated clearing is moved from London to New York—and let us not kid ourselves that it will move anywhere else—we, the United Kingdom and the whole of Europe, will lose out. As a matter of urgency, the UK Government need to secure agreement from the European countries that euro-denominated clearing will not be removed from London. The clearing house function supports 100,000 jobs in the United Kingdom. It is not true that, as the Chancellor said recently,

“in terms of…jobs and value…it is a relatively small part of the total.”—[Official Report, 25 October 2016; Vol. 626, c. 149.]

A huge amount of the market, and City of London services, rely on the clearing house function, and the Government must prioritise it.