MNI INTERVIEW: Former City Minister: Brexit Could Benefit UK

--Hoban: Euro Clearing Likely To Remain In London

--Hoban: Transition Needs To Be Established By End-Q1 '18

By Kieran Williams

     LONDON (MNI) - Euro clearing operations will likely remain centred in

London after Brexit, despite clear political opposition in the European Union,

Mark Hoban, a former UK City Minister and now Chairman of the International

Regulatory Strategy Group said in an exclusive interview with Market News.

     "Economically it is very clear that EU clearing should remain in the UK,

but this faces political opposition," Hoban told MNI.

     Under current proposals from the European Commission, smaller firms could

continue to operate under existing rules, while larger firms would face stricter

scrutiny and be pushed to move clearing of euro denominated derivatives inside

the bloc.

     Already opposition within the block has become evident. Not only have

several EU countries noted that London offers a higher quality of services than

found anywhere else in Europe, but there has been disagreement over the

proposals to give the European Securities and Markets Authority (ESMA) a

centralised supervision role.

     Ultimately, Hoban sees the EU capitulating on euro clearing issues, saying

that if the EU were to impose costs on themselves by moving clearing from

London, they would "have to explain to the electorate why they have imposed this

cost."

     U.S. dollar clearing in London is also fairly safe, said Hoban, citing

recent comments made by CFTC Chairman Christopher Giancarlo that it would be

risky to separate euro and dollar clearing. Earlier in November, Giancarlo said

that "if the European Union mishandles Britain's exit, the consequences for U.S.

businesses and consumers could be serious."

     Away from the thorny issue of euro clearing, Hoban believes the UK will be

financially worse off after Brexit, but the UK should not allow Brexit to define

the future of financial services.

     Hoban said that the UK had an opportunity to capitalise on other trends

developing in financial services such as financial technology (fintech) and

emerging markets. "If the UK could capitalise on these there could be an

increase in UK financial services between now and 2025," he said.

     Hoban cited a recent report compiled by CityUK and PriceWaterhouseCoopers

(PwC) showing that the sector could add stg43 billion to the economy by 2025.

The proposals in the report, supervised by Hoban, include discussions between

the financial services industry and government ministries, an annual review of

regulation, and a digital skills visa that would allow young people with digital

skills into the UK even they did not have a job offer.

     Hoban is optimistic that an outcome positive for both sides can be reached

from the ongoing Brexit negotiations. "It is not in the commercial interests of

the EU to fragment the financial system," said Hoban, adding that "EU could be a

net loser if they seek to force people to leave the UK" as some would go to

other hubs such as New York or Singapore.

     While there is an inevitable degree of posturing, the EU and UK are very

deeply integrated and it in the best interests of both sides for a comprehensive

agreement on financial services to be reached. Hoban posits it there are two

potentially viable models that would allow a high level of access between the UK

and the EU going forward; the equivalence based model (Norway style) and a

mutual recognition based model.

     Hoban favours the mutual recognition style model as this would mean that UK

would not be forced to be rule takers, but says the challenge is in maintaining

a degree of alignment.

     "You can't have the same set of rules for two systems that have developed

over time, there has to be some sort of evolution and it has to happen in

parallel to maintain access," said Hoban.

     When asked about the recent "leaked" document from the EU that the UK would

be forced to accept a Canada style trade deal, Hoban dismissed this as

negotiation brinkmanship. "A Canada type deal is not ambitious enough, it would

be detrimental to both the EU and the UK," Hoban told MNI.

     The transition period will be the key development over the coming months,

said Hoban, noting that "time is not on our side, the later it happens the

harder it will be."

     "There was a huge emotional shock after Brexit, businesses are now in a

much more pragmatic space. Financial services came to terms with Brexit ahead of

many other sectors" and as such brings the transition period into even clearer

focus.

     "Transition usefulness is different by sector, the most sensitive need

certainty by the end of Q1 2018" said Hoban, adding that financial services fall

into this bracket.

     The next round of negotiations are due to begin on December 4, with the EU

are seeking to establish sufficient progress on 3 key issues before advancing

talks; the financial settlement bill, citizens' rights and the island of

Ireland.

     Recent reports state that a formative deal has been reached over the Brexit

bill, and citizens' rights issues have been effectively settled, but the

question of how to deal with Ireland has no end in sight, putting a spanner in

the works for the progression of negotiations to the next phase, where a

transition deal could be established.

     The UK has already embarked on a charm offensive in a bid put the brakes on

businesses contingency plans and retain financial services companies in the UK.

     The budget last week was designed to reassure the sector that they would

get more attention after Brexit, while Secretary of State for Exiting the EU,

David Davis, made a business-friendly speech at a UBS event earlier this month.

     It could be too little too late. JP Morgan have already started informing

some staff that they will move to the continent, and Goldman Sachs have

confirmed offices in Berlin and Frankfurt will be moved front and centre.

--MNI London Bureau; +44 203 865 3809; email: kieran.williams@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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