With so many challenges, changes, concerns and opportunities in the in-trays of financial services executives, I hesitate to add a further ‘watch out’. However, one of the most significant international trade negotiations of the last decade has started in the background of the last two months as the UK and US seek to establish a new trading relationship, underpinned by a comprehensive free trade agreement.
Both sides have set out their respective stalls and have started negotiations to gain an understanding of where there is alignment and where the tensions might lie.
Although the primary focus is on goods, the UK is hopeful of boosting trade in digital services. The UK also hopes to secure an early deal on financial services and will run talks in parallel on improving ties between the City of London and Wall Street.
Concerning the City, the UK team is seeking to expand opportunities for UK financial services and ease frictions to cross-border trade and investment, complementing cooperation on financial regulatory issues.
The US would like to see an expansion of competitive market opportunities for US financial service suppliers to obtain fairer and more open conditions of financial services trade. Also, the US Government is aiming to improve transparency and predictability in the UK’s financial services regulatory procedures and ensure that the UK’s financial regulatory measures are administered in “an equitable manner”. This latter point could have potential difficulties as the UK also seeks to maintain equivalence with relevant EU financial services legislation.
The US Government is also seeking commitments to ensure that the UK refrains from imposing measures in the financial services sector that restrict cross-border data flows or that require the use or installation of local computing facilities.
The UK Government’s ambition is to include provisions that facilitate the free flow of data, whilst ensuring that the UK’s high standards of personal data protection are maintained. It will be important for the UK to maintain its access to the EU financial markets, which may require commitments around the continued application of provisions on cross-border data transfer under GDPR.
Data protection is unlikely to be an insurmountable block for the UK-US negotiations although it will certainly be one of the most important technical issues which will need a solution. It isn’t the only one but negotiating with the world’s largest trading bloc and the world’s largest economy at the same time was never going to be an easy task.
For those who are seeking to engage with the UK Government, it is important to match up with the HM Treasury and the Department for International Trade (DIT).
The catalyst for the creation of DIT was the result of the EU referendum, but before that, the performance of UK Trade & Investment (UKTI) had become a serious issue for the Government. DIT is still building and adjusting structures and that has led to a constantly high churn rate throughout the department. However, those holding senior positions at the top of the official structure, alongside ministers, are both more stable and more influential. Meanwhile, the Secretary of State role at the DIT is still not considered as one of the great offices of state, yet, but over the coming months and years, it has the potential to wield a growing level of influence within the cabinet and potentially achieving an increasing level of seniority in cabinet ranks.
There is also the US political cycle to bear in mind, and what the result of the US Presidential election might mean for the trade agreement. Robert Lighthizer, President Trump’s trade chief, warned last month that it would be “almost impossible” for the two countries to strike a deal this side of the Presidential election. This means the UK Government must consider the shifting political sands if Joe Biden wins. To put it mildly, Biden and his top advisors are not fans of Brexit and have suggested that it is bad for the US, EU and the UK. Added to that, Biden will likely want to undo some of the perceived reputational damage the US has suffered in Europe during Trump’s administration, and that could lead to a renewed US focus on EU relations. Not good news for the UK’s chances of securing the bandwidth necessary to finalise a treaty.
Now more so than ever it is important that businesses understand the impact that the future trading relationship between the UK and US will have on their operations to capitalise on potential market opportunities on both sides of the Atlantic.
And for those leaders in financial services who want to make sure their point of view is part of the planning for these new cross border arrangements, then they need to make sure their voice is being heard by the right people at the right time.