Pound jumps as Britain, EU near Brexit deal on financial services

Return to sender: The UK and the EU are on song for a financial services agreement. (AFP)
Updated 01 November 2018
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Pound jumps as Britain, EU near Brexit deal on financial services

  • Britain’s Brexit ministry said progress was being made on reaching a financial services deal
  • Many top bankers fear that Brexit will slowly undermine London’s position as the world’s biggest international financial center

LONDON: A deal giving London, the world’s largest center of international finance, basic access to EU financial markets after Brexit is nearly done, a British official said.
Such a deal would give the UK a level of access to the EU similar to that of major US and Japanese firms, while tying it to many EU finance rules for years to come.
“We are making progress,” the official, who spoke on condition of anonymity, told Reuters.
But the official said the financial services deal would be based around the EU’s existing “equivalence” system — far short of the deep and preferential post-Brexit market access that many have been hoping for.
Another British official said that while there was progress, nothing was finalized yet.
The financial services deal was part of the overall Brexit deal that Prime Minister Theresa May hopes to strike by the end of the year at the latest, the second official said.
Britain’s Brexit ministry said progress was being made on reaching a financial services deal, while the European Commission had no immediate comment.
Many top bankers fear that Brexit will slowly undermine London’s position as the world’s biggest international financial center, and a Reuters survey found that, so far, just over 600 are moving away. Global banks have already reorganized some operations ahead of Britain’s departure from the EU, due on March 29.
The Times newspaper reported that a tentative deal had been reached on all aspects of a future partnership on services, as well as the exchange of data. The pound jumped following the report, extending gains in early trade to reach $1.2914.
Britain is currently home to the world’s largest number of banks and hosts the largest commercial insurance market.
About €6 trillion ($6.82 trillion) or 37 percent of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris.
In addition, London dominates Europe’s €5.2 trillion investment banking industry.
Since Britain voted to leave the EU more than two years ago, some of the world’s most powerful finance companies in London have been searching for a way to preserve the existing cross-border flow of trading after Brexit.
The tentative deal being discussed falls far short of that.
Currently, inside the EU, banks and insurers in Britain enjoy unfettered access to customers across the bloc in all financial activities.
Equivalence, however, covers a more limited range of business and excludes major activities such as commercial bank lending. Law firm Hogan Lovells has estimated that equivalence rules cover just a quarter of all EU cross-border financial services business.
Supporters of Brexit had hoped that leaving the EU would allow them to dispense with EU rules on financial services, such as caps on bankers’ bonuses, to turbocharge London as a financial hub.
Britain’s Financial Conduct Authority said on Wednesday that UK financial rules should stay aligned with those in the EU after Brexit, a basic condition for Brussels to grant equivalence.


OECD warns of global economic slowdown

Updated 11 min 12 sec ago
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OECD warns of global economic slowdown

  • ‘We urge policy-makers to help restore confidence in the international rules-based trading system’
  • Trade tensions have already shaved 0.1-0.2 percentage points off global GDP this year

PARIS: The global economy has peaked and faces a slowdown driven by international trade tensions and tighter monetary conditions, the Organization for Economic Cooperation and Development warned Wednesday.
The OECD, which groups the top developed economies, said it had trimmed its growth forecast for 2019 to 3.5 percent from the previous 3.7 percent.
The 2018 estimate was left unchanged at 3.7 percent.
For 2020, the global economy should grow 3.5 percent, it said in its latest Economic Outlook report.
“The shakier outlook in 2019 reflects deteriorating prospects, principally in emerging markets such as Turkey, Argentina and Brazil,” it said.
“The further slowdown in 2020 is more a reflection of developments in advanced economies as slower trade and lower fiscal and monetary support take their toll.”
OECD chief Angel Gurria highlighted problems caused by trade conflicts and political uncertainty — an apparent reference to US President Donald Trump’s stand-off with China which has roiled the markets.
“We urge policy-makers to help restore confidence in the international rules-based trading system,” Gurria said in a statement.
Trade tensions have already shaved 0.1-0.2 percentage points off global GDP this year, the Economic Outlook report said.
If Washington were to hike tariffs to 25 percent on all Chinese imports — as Trump has threatened to do — world economic growth could fall to close to three percent in 2020.
Growth rates would drop by an estimated 0.8 percent in the US and by 0.6 percent in China, it added.
For the moment, the OECD puts US economic growth at 2.9 percent this year and 2.7 percent in 2019, unchanged from previous estimates, but trimmed China by 0.1 percentage point each to 6.6 percent and 6.3 percent.
It warned that “a much sharper slowdown in Chinese growth would damage global growth significantly, particularly if it were to hit financial market confidence.”
Laurence Boone, OECD Chief Economist, said “There are few indications at present that the slowdown will be more severe than projected. But the risks are high enough to raise the alarm and prepare for any storms ahead.”