Written statement on Financial Services Update

Mr Philip Hammond (Chancellor of the Exchequer):The Bank of England today announced plans to ensure continuity in financial services in the unlikely event of no deal with the European Union. The December European Council decided that sufficient progress had been made in the first stage of the EU exit negotiation and the government is therefore confident that it will agree an implementation period and a deep and special partnership. However, there is also a responsibility for the government, the Bank and the FCA to plan for all outcomes including the unlikely scenario of no deal being reached. Therefore, the government welcomes today’s announcements by the Bank of England and the FCA. In the event of agreement not being reached, they would ensure that the UK’s position as the world’s leading financial centre is maintained and UK customers are protected. This is because the presence of EU financial service firms in the UK:

• Supports UK exports – if a European bank with a presence in London sells to another country UK exports are boosted;

• Creates jobs, both directly in branches but also associated professions such as finance, legal and accounting;

• Raises revenue from tax to fund our vital public services;

• Benefits consumers, such as the six million customers that currently have insurance policies with EU firms.

There are 160 branches of international banks in the UK; 77 are from the EEA. Their assets total £4 trillion, substantially more than UK GDP. Keeping that presence in the UK is in Britain’s national interest and today’s announcement illustrates that the government stands ready to do what is necessary to protect it.

As requested by the Bank and the FCA, the government will, if necessary, bring forward legislation:

• which will enable EEA firms and funds operating in the UK to obtain a “temporary permission” to continue their activities in the UK for a limited period after withdrawal; and

• alongside the temporary permissions regime, the government will legislate, if necessary, to ensure that contractual obligations, such as insurance contracts, which are not covered by the regime, can continue to be met.

We will also bring forward secondary legislation to ensure that UK authorities are able to carry out functions currently undertaken by EU authorities. We propose to give the Bank of England functions and powers in relation to non-UK central counterparties (CCPs) and non-UK central securities depositories (CSDs). If necessary, we will also provide for a temporary regime to enable the Bank to permit these firms to continue to operate in the UK for a limited period after exit. The Bank will set out its approach to CCPs located abroad today. We will also provide the FCA with functions and powers in relation to UK and non-UK Credit Rating Agencies and Trade Repositories and any powers necessary to manage the transition post-exit. HM Treasury will work with the Bank and FCA as they determine how they will use these powers, consistent with their statutory objectives.

Whatever the outcome of the negotiations, the government is strongly supportive of continued engagement and cooperation between UK and EU regulators to protect financial stability. It is vitally important that we work with our European partners to put the technical arrangements in place to avoid financial market disruption.