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City of London’s EU rivals warned Brexit not a ‘zero sum’ game

Chancellor Philip Hammond has set out his plans for the financial services to be covered in a Brexit deal.

Rivals to the City of London have been warned by Philip Hammond they will not pick up business from a Brexit deal which excludes financial services.

The Chancellor said it would be in the interests of both the European Union and UK for the sector to be part of the settlement.

Mr Hammond warned the “real beneficiaries” of any loss of market share in London would not be EU trading centres, but global hubs like New York, Singapore and Hong Kong.

In a speech at HSBC’s base in London’s Docklands, Mr Hammond said: “I want to challenge the assertion that financial services can’t be part of a free trade agreement, to set out why it is in the interests of both the UK and the EU27 to ensure that EU businesses and citizens can continue to access the UK financial services hub.

“This is not a zero-sum game where any loss of market share in London is automatically a gain to another EU capital.”

Chancellor Philip Hammond arrives at HSBC UK headquarters in Canary Wharf, east London with CEO John Flint (Stefan Rousseau/PA)

Mr Hammond said the City of London was a “European asset” and any trade deal which undermined it would damage the EU.

He said: “Those who think that the major winners for any fragmentation of London’s markets would be Paris or Frankfurt, Dublin or Luxembourg should take note.

“The real beneficiaries are more likely to be New York, Singapore, and Hong Kong, cutting Europe’s market share.

“And leaving Europe as a whole, less competitive and more reliant on distant financial centres, operating under very different rules.”

The financial services sector is economically vital to the UK, while the country provides an important market for EU manufacturers.

Mr Hammond said: “A trade deal will only happen if it is fair and balances the interests of both sides.

“Given the shape of the British economy, and our trade balance with the EU27, it is hard to see how any deal that did not include services could look like a fair and balanced settlement.”

Setting out his plans, he said the existing equivalence regime by which third countries can deal with the EU would be “wholly inadequate” for the scale of the UK’s relationship with Brussels.

He said the principle of “mutual recognition and reciprocal regulatory equivalence” could provide the basis for a relationship but it would need to be objectively assessed with proper governance structures and dispute resolution mechanisms.

The Confederation of British Industry’s deputy director-general Josh Hardie backed the Chancellor, saying “trying to forge a new trading relationship with our largest trading partner that does not include financial services is like building a ship with no sails”.

UK Finance chief executive Stephen Jones said: “A framework based on close supervisory cooperation and mutual recognition would be a win-win, benefiting the businesses and customers across the continent who rely on UK financial services.

“Firms now want to see swift agreement on the transition period, to provide much-needed certainty and allow us to focus on reaching a mutually beneficial trade deal.”

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