The City of London and the UK’s financial services industry, like the rest of the economy, remains part of the EU’s single market.
Although the market is not quite as smooth and borderless for financial services as it is for, say, manufacturing, the City has been pretty happy with that deal.
Not least because an awful lot of international banks and other businesses have set up their European headquarters in London to take advantage of “passporting”.
That means that if a company is regulated in one EU country, it can do business in any other given it has a passport to do business anywhere in the EU.
The financial services industry therefore came out strongly – though not unanimously – in favour of Remain.
There are, of course, plenty of business leaders in financial services who think the UK can now prosper even better outside the EU. But as an industry, the City lost the argument at the ballot box and it is now debating what deal the UK government can negotiate to ensure its future.
The options come down to something the well-dressed City slicker knows all about. Does it go for an off-the-peg arrangement, or have something made bespoke?
Off-the-peg would be best for many in financial services: they would prefer that if the UK is to leave the EU, it should at least stay in the single market, which would include that all-important passporting.
However, it is looking increasingly likely that the off-the-peg solution is just not an option. That is because membership of the single market has always come at a high price, allowing the free movement of people from across the EU and paying money into the coffers of the EU.
The City, which has been testing the waters, seems to have decided that is just not going to happen.
As prime minister Theresa May said, “Brexit means Brexit”. And with many voters deciding to vote Leave to keep “our money” and to reduce immigration, the price of membership of the single market would be unacceptably high.
That leaves a “bespoke” solution, one based on the Swiss Model (pun intended), one where the UK negotiates a series of deals with the EU covering different industries.
This is what Switzerland has done and it is a very prosperous country, but it does raise several areas of concern for the financial services industry in the UK.
For a start, the City will want a better deal than the Swiss enjoy. The perfect illustration of that is the fact that one of the reasons the City is so successful is that it has attracted all those banks to London to do business in the EU, including all the major Swiss ones.
That’s because Switzerland’s deal with EU does not provide its banks with that “passport” the UK enjoys, so they have to base a lot of their staff here. A great gain for our economy and a bit of blow for the Swiss economy.
It also illustrates why these deals are going to be so important and need to be negotiated very carefully, not to mention with a will of steel.
The financial services industry employs more than two million people in this country and it pays more in taxes to the government than any other sector of the economy. It is therefore an industry that other rival financial centres would like to get their hands on – places such as Paris, Frankfurt and Amsterdam, for instance.