Promoting global trade in financial services is central to UK economic recovery
UK Finance has set out proposals to place the financial services industry at the heart of the UK's post-Covid-19 economic recovery, with an ambitious strategy to boost UK exports of financial services...
In a report published today, UK Finance has provided a detailed analysis of international trade in financial services, the tools that can be used to promote it and the benefits it brings for businesses and consumers.
The UK is the world’s top net exporter of financial services, above the United States and Switzerland, with a financial services trade surplus of $77 billion (equivalent to £60.3 billion) in 2019. The banking and finance industry currently employs over one million people across the United Kingdom, with over two-thirds of these jobs located outside of London.
The report identifies seven recommendations for the UK government and regulators to build on these strengths and promote international trade in banking, payments and other related services. These changes would not only benefit the financial services sector but would boost the economy as a whole, by generating jobs across the country, lowering costs for consumers and helping firms in other sectors expand into overseas markets.
The report, International Trade in Financial Services, calls for a comprehensive strategy on “regulatory diplomacy”, in which UK financial regulators such as the Bank of England and Financial Conduct Authority work with their counterparts in other countries towards improved market access. The aim of this would be to encourage other countries to open their domestic markets to UK-based financial services providers and promote cooperation in innovative areas such as AI, cybersecurity and fintech.
The report also proposes that the UK should use its position at key international bodies like the Financial Stability Board (FSB) and Basel Committee to push for global convergence in financial standards, making it easier for firms to operate across different countries. In addition, the UK should champion initiatives at the World Trade Organisation to support global free trade in services, while using new trade agreements to unlock market access for financial services in key markets such as Japan and the United States.
David Postings, Chief Executive of UK Finance, said:
“The banking and finance sector is a significant contributor to the UK economy. The industry’s trade surplus is vital, and we are keen to work with the government and regulators to increase these benefits for the UK.
“We are setting out the tools available to policymakers to achieve this, from using regulatory agreements and free trade deals to open up new markets overseas to playing a leading role at global standard-setting bodies like the WTO and Basel Committee.
“This would deliver significant benefits for the wider economy as we recover from the impact of the Covid-19 pandemic, increasing exports in other sectors, generating jobs and driving down costs for consumers.
“The UK should seize the opportunity to be a global champion for free trade in financial services, building on our strengths as the world’s most open and international financial centre.”
Gerry Grimstone, UK Minister for Investment, said:
“The UK has long been and continues to be a champion of free trade on the world stage.
“Financial Services is one of our most productive and innovative sectors, helping to drive our economic recovery by creating jobs and growth across the country.
“I welcome the role that organisations such as UK Finance play in representing the interests of the Financial Services Sector as part of the UK’s ambitious global trade policy.”
The seven recommendations in the report are:
Develop a comprehensive regulatory diplomacy strategy for financial services. The UK has some of the most effective and experienced financial regulators and supervisors in the world. Their relationships with their international peers are a key channel for sharing best practice and shaping the way they develop and implement financial regulation and the way it treats UK firms that invest and trade.
Continue to play a leading role in setting international financial services standards. The single most effective way of driving convergence in financial services regulation internationally is by shaping the standards that shapes the rules. As a global financial centre, the UK has championed and led the work of the FSB, Basel Committee and IOSCO over the last decade and should continue to do so.
Build a network of formal platforms for regulatory and supervisory cooperation. These should be underpinned by formal agreements, protocols for data sharing and permanent structured dialogues. These can have a particular value in areas of rapid technological change such as cybersecurity, AI and digital financial services. Examples include the UK-Switzerland Global Financial Partnership and the range of ‘Fintech Bridges’ the UK has established with key partners.
Pioneer the innovation and expansion of cross-border trading models based on recognition. With a small number of jurisdictions that match the UK’s high standards, the UK should explore ways of opening new cross-border choice and competition based on cross-border supply. The new partnership with Switzerland is a perfect test case.
Use a new set of free trade agreements (FTAs) to lock in UK market access for financial services in key markets, codify world-class standards for financial services regulation and reinforce regulatory cooperation and collaboration. The UK-Japan FTA demonstrates the potential here.
Champion a range of WTO-level initiatives that will support trade in financial services. While the WTO framework in this area is unlikely to evolve materially in the years ahead the UK should remain an advocate of a revived Trade in services Agreement (TISA) and current work on digital trade and e-commerce.
Sustain the UK’s openness to imported financial services. UK’s import regime for financial services both through inward investment and cross-border supply is very open. This is the right choice for the UK domestic economy and for the UK as a global financial centre. An open import regime allows consumers to draw on a wide range of competitive services, boosting competition and driving down costs. Whatever others do in the years ahead, the UK should sustain its open approach.