A new transatlantic gold standard? - The future of US/UK trade in financial services post Brexit webinar series - 3/5

• Global

• Brexit
• Financial services

04-03-2021

3  February 2021 -  Securities industry and financial markets association (“SIFMA”)

Please click here to view the PDF version of this article. 

A series of five webinars exclusively for clients held under the Chatham House rule through January and February 2021 looking at a potential deal to support a closer US-UK trading relationship in financial services is summarised below.

Introduction

Week three of our series of webinars welcomed SIFMA, which has been coordinating the voice of the US financial services industry in the ongoing US/UK trade discussions. The webinar covered the following key issues:

• The roles of SIFMA and the British American Finance Alliance (“BAFA”)
• The US financial services industry and the US regulatory framework
• The new US Administration and its likely impact on UK/US negotiations
• The special relationship between the US and the UK
• Framework of US/UK cooperation
• Key threshold issues for a successful US/UK future relationship

Summary of discussion

The role of SIFMA

SIFMA is a US trade association bringing together professionals operating in the capital markets to promote, amongst other key goals, market resilience and prosperity. SIFMA has sister  associations in the form of the Association for Financial Markets in Europe (“AFME”) and the Asia Securities Industry and Financial Markets Association (“ASIFMA”) which together form the Global Financial Markets Association (“GFMA”).   

The role of SIFMA in BAFA

BAFA is an umbrella arrangement which represents most the US/UK financial services industry. SIFMA hopes that BAFA can be a helpful resource to US/UK regulators and policy makers by providing a readily available platform for industry engagement.

SIFMA would like to amplify the voice of the industry efficiently across the Atlantic, which can simultaneously avoid duplication of effort and increase the chances of industry being heard.

The US financial services industry and the US regulatory framework

Capital markets fund over 70% of all economic activity in the US, which contrasts with Europe where bank lending still prevails. The breadth and depth of liquidity in the US markets is an asset for the US economy across industries.

The US regulatory landscape is more complex than that of the UK. The US Treasury acts as the centre of gravity alongside independent regulating agencies which consist of around 12 in total (excluding state regulators). This includes the Federal Reserve, the Federal Deposit Insurance Commission, the Commodities Futures and Exchange Commission, the Securities and Exchange Commission and the Office of the Comptroller of the Currency.  

The new US Administration and likely impact on US/UK trade negotiation

The UK has a permanent civil service whereas in the U.S. political appointees account for much of the upper echelons of government. It can time for all these positions to be nominated and ultimately confirmed. This may result in delay in trade negotiations. For example, David Malpass did not take up his position as the Under Secretary of the Treasury until August 2017 under the Trump Administration. There is no current nominee to the role of Under Secretary of the Treasury for International Affairs,.

In addition, the time-limited nature of US trade negotiating bodies may cause further delays. The Trade Promotion Authority (“TPA”) is the key instrument in the US that underpins the President’s negotiating authority. Congressional authority granted to the establishment of the TPA will expire in July 2021 and there is no automatic roll-over of this authority. The President will have to invest political capital in renewing the TPA which will add another layer of political complexity to achieving a trade deal.

The special relationship between the US and the UK

When considering US/UK cooperation in financial services it is important to look at both trade and regulatory cooperation.

On the trading aspect, both countries are likely to want to bounce back from the COVID-19 crisis with strong cross-border trade and investment. Cooperation will enable both countries to mutually benefit from comparative advantages of their respective economies, and to ensure free capital flow.

On the regulatory aspects, London and New York are the leading financial centres of the world and the US and the UK also have similar approaches to financial regulation. The end of the UK’s transition period provides a golden opportunity for the US/UK to work together in setting an anchor and benchmarks for future global financial services regulation.

Framework of US/UK cooperation:

BAFA recognises and understand the complimentary and symbiotic nature of trade negotiation and ongoing regulatory dialogue.

There are many forms that US/UK cooperation may take. Under the Trump Administration, a full United States-Mexico-Canada Agreement was concluded, but a “skinny deal” such as the US-Japan Digital Trade Agreement was also achieved. “Skinny deals” should not be the new standard for trade agreements, and the best outcome would be a comprehensive trade deal in the form of a legally binding agreement which can provide certainty.

The Financial Services Regulatory Working Group (“FRWG”) provides a platform for continued US/UK regulatory dialogue. In the near term, given the current political and procedural context, more may be achieved through the efforts of this forum than through trade negotiations.

Key threshold issues for a successful future US/UK relationship

• Free flow of data

Avoiding barriers to free flow of data is important to the US. The US’ initiatives on this topic can be evidenced by the EU-US Privacy Shield put forward by the Obama Administration (although it saw subsequent executive challenges by the Trump Administration). It will be important for the Biden Administration to continue the negotiation efforts of the Obama and Trump Administrations on free data flows.

• Digital Trade

The US and the UK are experts in the technology and financial services industries. There are lots of potentials for digitisation, including the use of technology to streamline regulatory compliance. Future trade agreements could also provide protections to proprietary business algorithms or technology. Any such agreements will set benchmarks for the US and the UK’s future negotiations with other jurisdictions, and the parties should think dynamically on this topic.

• Sustainable Finance

The political winds of the new Administration blow favourably towards sustainable finance, and the US financial industry will want to constructively contribute to this discussion. The US can learn from the significant progress that the EU and the UK have made, and cooperation on this topic is likely to be a key issue going forwards.

Next steps for SIFMA

BAFA, led by SIFMA, TheCityUK and City of London Corporation will meet the US department of the Treasury and HM Treasury in February. It will be an opportunity to revisit themes that have been set in BAFA’s scoping paper, and to hear from policymakers on their future plans and timelines for the FRWG.

Our webinar series, hosted by Head of Financial Services Matthew Allen focuses on the US-UK negotiations and how the Financial Services Sector will be impacted. To read through the webinar summaries, please click below.

20 January 2021 - Isobel McIntosh, HM Treasury 

3 February 2021 - Lisa Vainio, TheCityUK

17 February 2021 - James Flannery, HM Treasury 

24 February 2021 - Lord Grimstone, HM Treasury

To read our dedicated briefing on the US-UK negotiations, please click here.