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Summary
- Swiss banking institutions like UBS and Credit Suisse have a strong presence in the United Kingdom, and half of the financial services exports to Switzerland come from Britain
- A new bilateral accord between the countries is required as the EU framework under which both the countries are part of will come to an end in December 2020
The United Kingdom and Switzerland have signed a joint statement on 30 June 2020 which calls on both the countries to deepen their cooperation in the field of financial services including cross border trading of securities. The two countries which have deep trading relations in this field intend to make it more convenient for the businesses from both sides to trade with each other with simple laws and regulations. This agreement paves the way for a negotiated deal which both countries could enter into in future to further their business interests. Till now both the countries were trading with each other under the European Union (EU) framework, but with the United Kingdom breaking away from the EU both countries need a new mechanism to continue with their trading engagement unhindered. It is worth noting here that Switzerland is not a part of the EU.
The scope of the agreement
Both UBS and Credit Suisse are amongst the largest financial institutions in the world. They have a major presence in the United Kingdom, across multiple verticals in the financial services industry. In fact, close to half of the financial services exports to Switzerland come from Britain. The importance of the British financial markets, thus for swiss banking and financial companies is paramount. London has been the gateway to the global financial markets for the swiss financial corporations, and is also one of their largest trading hubs outside Zurich. Deeper cooperation between the two countries will only serve to expand and strengthen the banking and financial services industry in both the countries.
The agreement between both countries intends to facilitate cross border access to wholesale financial service markets by financial institutions on both sides. The services would include insurance, banking, asset management, as well as access to capital market infrastructure. The United Kingdom has also done an assessment of the rules and regulations of the Swiss stock exchanges and found them to be strong and compatible with the British stock exchanges. Under the terms of the agreement, both sides will immediately technically work with a financial dialogue taking place on 8 September 2020 and stock taking on the progress made so far at the end of the year. The British chancellor of exchequer Rishi Sunak while speaking on the agreement said that, as soon as an equivalent-powers come into force between the two countries, necessary legislation will be laid down so that trading between stock exchanges of both countries can be initiated at once. This cooperation between the countries could very well make buying and selling of shares across markets much easier for investors than it was ever before.
Breaking away from the EU regulations
The United Kingdom has always felt that the EU regulations have restricted the growth of the British financial industry. London, which has a long history of being one of the largest financial and trading hubs of the world, had been bound by the regulations drafted at Brussels, the headquarters of the EU ever since it became a part of the Union. While these regulations were enforceable on every member country of the EU, people in the United Kingdom felt that a lot of innovations that could have been brought about in the country's financial markets was getting restricted because of the country's dependence on Brussels. Regulations devised in the United Kingdom will be tailor-made for the British capital markets and banking system, which will give it greater flexibility to operate, and will also allow the country to get into a greater depth of cooperation with potential trading partners, not possible under the current regulations.
The Boris Johnson governments promise to the British voters
Boris Johnson and his party have been major supporters of the idea of the United Kingdom breaking away from the EU. The current prime minister had promised voters during his re-election campaign that once the county breaks away from the EU, his government will initiate trade negotiations with a number of countries and sign in trade deals which will usher in a new era of growth and development across Britain. During the past few months despite the restriction in movement of people across borders, the country has been holding trade negotiations with a number of countries over video conferencing and is also planning more such interactions in the months to come. The current agreement with Switzerland was entered into via a virtual meeting.
Similar negotiations are on with the EU, but are slow
The UK has also been undergoing negotiations with the EU to enter into suitable trade deals which will protect, business interest on both sides when the EU regulations cease to apply on the country at the end of 2020. Britain has been trying to gain access to the other stock exchanges in the EU under similar terms, but the response from the EU side has not been equally encouraging. In fact, the EU has said that Britain’s proposal as-it-is could be unacceptable, and may need changes. It will be interesting to see, however, how the EU and British negotiators proceed with their negotiations and whether they would be able to arrive at a suitable agreement that would further the interests of investors and financial institutions on both sides.
Conclusion
Britain’s decision to sign up an agreement with the Switzerland in the financial services domain is a step in the right direction. The breaking away of the UK from the EU has ushered in a new era for the nation to transform and rebuild itself so that it is future-ready and is on the forefront of all technological and business endeavors that might present themselves. Transforming the capital markets so that they allow better access to participants from more geographies is expected to give more depth to the London Stock Exchange.
