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Whatever the Payment, Whatever the Politics, It the Law that Counts

The Prime Minister wants the Brexit negotiations with Brussels to reach a free trade deal, an aim that I and most people share. For financial services, this should be relatively simple. Current arrangements could continue with minor amendments to the EU’s equivalence concept so the UK is not a rule-taker, but sovereign, after Brexit. My recent publication set out the legal framework for how best to achieve a free trade deal: A Template for Enhanced Equivalence

That goal remains the UK’s Plan A.

But, as in any negotiation, there must be a Plan B, a fully-fledged and operational alternative scheme – in short, a back-up plan. In The Art of the No Deal: How Best to Navigate Brexit for Financial Services I explain what active steps must be taken so Britain and the global financial markets hosted here are properly prepared for the fallback of a No Deal.  This is not a show of bad faith. It is what responsible negotiating parties must do, just as Germany, France and other EU member states are already doing. It would also bring benefits and strengthen Britain’s negotiating hand.

Instead of appearing desperate to get a deal at almost any cost – and we can see the EU’s bill tends to go up but is still, as yet, untied to any offer – the UK can then negotiate from a position of strength. It could attach price tags for key elements of what it seeks, and reduce the provisional amounts for each item that the EU fails to deliver on. With Plan B underway the UK would know it could walk away if necessary.

Preparing for Plan B would also protect the UK from the EU’s wish to “punish” the UK, from attempts at continued control through the ECJ or demands to follow EU laws or processes. It would empower the UK to rebut assertions as to what EU law will or will not allow which have so far often gone unchallenged. And it might prompt the EU to leave its Alice in Wonderland world of changing its mind and its interpretations of its laws to suit the politics of the time.

The evidence from the City is that businesses do not want to move to the EU, even on a No Deal. There are good reasons for such reluctance. To begin with, businesses located in global financial centres grow more quickly and are more profitable than elsewhere. Moving can be expensive – and moving whole families, their schools and their lives, difficult. Often top talent prefers to stay put and move only if needs be. Whether for businesses or for its employees, the City is, and will remain, the only global financial centre in Europe.

The Art of the No Deal therefore sets out the steps which the UK Government and financial services industry should take to achieve this Plan B.

Ten Steps for the UK Government to take:  Ten Steps for the UK Government

These steps would bring many benefits and provide a cheap and attractive basis for business after Brexit, deal or no deal, without relocation to the EU to serve EU customers. Above all, the right legal structures would be in place so the UK and the City could continue on the optimum basis – trading, investing, competing and attracting business, expertise and capital  after Brexit. Despite the politics, despite the horsetrading, despite the appearances, the EU respects the rule of law and must apply its own laws in a way that can be upheld in its own courts and in the international courts.  The UK can, by pursuing Plan B, ensure the EU behaves fairly and lives up to its own values, observing its own laws.

Preparing now for a no deal outcome would mean that Britain’s financial sector will be ready, whatever the politics, whatever the delays, whatever the obstacles, to trade and to do so without paying for the privilege.


Barnabas Reynolds

Barnabas Reynolds is a partner at Shearman & Sterling LLP and Global Head of the Financial Services Industry Group. He is the author of Restoring UK Law: Freeing the UK’s Global Financial Market, (2021) and co-author of The Lawyers Advise: UK-EU Trade and Cooperation Agreement – Unfinished Business? (2021).

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