City of London Corporation – Written Evidence (JTN0031)
Introduction
1. The City Corporation works closely with a wide range of stakeholders to promote UK-based financial and professional services (FPS). These include DIT, the Treasury, FCO and London and Partners. The common goal is to sustain prosperity and stimulate economic growth in London and across the UK through global trade and investment.
2. The recent pandemic has further emphasised the crucial role that international trade and FPS play in driving the economy. Trade will be one of the catalysts for economic recovery and the FPS sector’s role in underpinning global trade is crucial. This is combined with an increased reliance on digital and pressures on operational resilience. Exponential growth in the digitalisation of sectors is expected to continue in the post Covid-19 world and the massive shift to remote working due to Covid-19 places further emphasises the importance of digital policy. As the world has shifted online during the crisis period, there has been a rise in cybercrime which requires coordination and cooperation between regulators.
3. Relationships between business, regulators, and Government working together to support a thriving UK international trade environment will be extremely important. The City of London supports the UK Government’s ambition to include services and digital provisions in new free trade agreements (FTAs) with global markets and encourages the UK to explore opportunities to break new ground – developing agreements which evolve with technological change in the markets and address wider societal challenges. It is crucial that the UK works to advance and support forward looking trade agreements on the global stage. This includes FTAs as well as engagement with plurilateral agreements.
4. Japan is an important market for the UK and the announcement of the agreement of a UK-Japan FTA, with financial services and data provision at its heart, is a major achievement. A UK-Japan FTA should be utilised as the first step towards UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CPTPP is seen as a modern plurilateral agreement, particularly in services and digital trade provisions and offers the chance to join a forward-looking trade agreement. The City of London supports furthering the wide-ranging benefits of advanced trade agreements through the UK joining CPTPP.
FPS Sector Priorities
5. FTAs have the potential to deliver deep long-term gains for partners involved. For the FPS sector, FTAs have historic value in locking-in current market openness, prohibiting certain frictions (in the transfer of data, for example) and mandating mechanisms for continued dialogue at a regulatory level.
6. The pursuit of FTAs must run in parallel with a renewed focus on developing relationships at a regulatory level. These processes can and should be complementary and should be viewed holistically.
7. Many existing market access barriers in FPS can be addressed through enhanced regulatory cooperation outside specific FTA provisions. Enshrining a framework for regulatory cooperation dialogues in a trade agreement would provide greater regulatory and market certainty for ongoing regulatory cooperation and would clearly signal firm commitment to a continued collaborative spirit between these two governments and economies. Furthermore, embedding the principles of this regulatory cooperation within an agreement, and grounding in law commitments to the use of mutual recognition, deference, substituted compliance and similar methods, would be of value in defining both parties’ collective spirit.
8. The UK-based FPS sector sees the EU-Japan Economic Partnership Agreement (EPA) Annex 8-A as an example of best practice in this regard. The EPA annex establishes the principles for ongoing regulatory cooperation underpinned by international standards, with the key objective being comparable and consistent regulatory coordination between the EU and Japan. The City Corporation is pleased to note that the recently agreed UK-Japan FTA not only replicates this regulatory cooperation but lays the groundwork for it to be expanded further. The continued work of this dialogue to reduce regulatory friction is of crucial importance to the FPS sector and the City Corporation.
9. As it is based on the EPA, the UK-Japan FTA offers specific gains to FPS by both ensuring continuation of the status quo and expansion in ways unachievable through the EU. The City Corporation supports the recreation and emulation of the EPA’s financial regulatory cooperation chapter in the UK-Japan FTA. There is also support for the UK Government’s ambition to expand services provisions within the Japan FTA and include a specific financial services chapter. The City Corporation understands that the financial services provisions have been expanded to include greater transparency and streamlined application processes for UK firms. There is also wide support for the forward looking and cutting-edge digital and data provisions which go further than the EU-Japan EPA. The inclusion of anti-data localisation provisions, net neutrality, and the protection of personal data provide a solid support for further innovation and growth of UK firms in Japan. These gains should be reinforced and supported further through the UK Government’s focus on Regulatory Dialogues, Economic and Financial Dialogues, Financial Partnerships and Financial Dialogues as important vehicles for progress.
10. Consideration should also be given to the potential for developing deeper links between global financial centres themselves. Analysis shows that non-tariff barriers to trade in services are considerably higher than non-tariff barriers to trade in goods. Reducing such barriers would be beneficial to the UK economy and the long-term competitiveness of the City as a global financial centre, and therefore must be a priority.
The City of London Japan Engagement Programme
11. The FPS sector is working closely through the UK Government’s Expert Trade Advisory Groups and through the Global Financial Partnership initiatives on these agendas. The City Corporation complements these efforts with a sustained programme of in-market activity which seeks to identify key market access issues to address, opportunities for alignment, and build the inter-institutional trust needed to underpin bilateral FPS relationships.
12. The City Corporation has a wide programme of international engagement, including annual visits to Japan. As part of this programme, the Lord Mayor held a series of virtual visits to Japan at the end of June where he was joined by Lord Grimstone, Minister for Investment (DIT / BEIS) responsible for all inward investment. The principal message was one of determination to maintain the UK’s position and the strength of the City of London as a world-leading global financial centre, including through promoting an innovative, pro-growth environment; building resilience through the regulatory framework; and remaining open to talent, competition and global markets.
13. The pandemic, the recovery from it, and current FTA negotiations set the context for the visit. The visit highlighted the opportunities arising from green finance, climate action and a chance to advocate a move away from coal financing. Preparations for COP26 and plans for the November Green Horizon Summit in the City of London were shared. The UK’s offer in asset management was another key theme. Tangible evidence of the continued belief of Japan in London post-Brexit was apparent.
14. The visit enabled the Lord Mayor to have a number of grouped engagements around a theme and set of objectives. He was able to strengthen relationships with a key trading partner and offer current and future investors reassurance over the future of the City. The visit focused on the pandemic, plans for the recovery, and FTA negotiations while highlighting the opportunities arising from green finance, climate action, and wider clean energy goals.
18 September 2020