The Institute of Chartered Accountants in England and Wales (ICAEW)—Written evidence (TAS0020)
ICAEW submission to the House of Lords EU Internal Market Sub-Committee inquiry into the future of trade between the UK and the EU in non-financial services
1. The UK’s professional and business profession, of which accountancy is a key element, is a global success story. Accountancy plays a key role as an enabling force in the global economy. Through its advice, networks and capabilities, the sector can facilitate growth in other businesses, large and small, across the UK and beyond.
2. The UK profession is unique in Europe. This submission reflects this by considering three broad aspects which need to be carefully considered in the scope of the future UK-EU trade relationship.
3. As the UK formally leaves the EU and begins to negotiate its future trade relationship with the EU, professional services have a crucial role to play. Our expertise and international relationships will be vital as the UK negotiates a settlement with the EU and strikes trade deals with countries around the world.
4. This process will present both challenges and opportunities for the profession and the wider UK economy. This submission seeks to capture these and layout priorities for Government when negotiating the UK’s future trade relationship with the EU. ICAEW is an active participant of the Professional and Business Services Council and is grateful for their input to this submission.
5. The UK accountancy profession is one of the UK’s most successful business sectors. The largest global accountancy firms can trace their roots back to UK firms. Those firms provide services to the largest global companies and it is important for them to move partners and staff to different parts of the world, both to increase the experience of those staff and to ensure global consistency in the quality of services provided.
6. The success of the UK accountancy profession is depends upon a number of factors:
7. As at 31 December 2015, the seven accountancy bodies (ICAEW, ACCA, ICAS, CIPFA, CIMA, ATT & CAI had over 342,000 members in the UK and ROI and over 497,000 members worldwide. The compound annual growth rates for the 2011-15 period are 2.4% in the UK and ROI and 3.2% worldwide.
8. ICAEW has approximately 5,500 of its members working in the EU outside of the UK, and some 1500 students, the overwhelming majority of whom are non-UK nationals. We currently offer ICAEW qualification and training in Cyprus, Greece, Malta, Central and Eastern Europe and are developing in the Baltic States. 22,000 ICAEW members work internationally in non-EEA countries, leaving approximately 118,500 living and working in the UK.
9. The Office for National Statistics (ONS) does not compile trade statistics for the PBS sector; instead the sector’s results are included within the category of International Trade In Services (ITIS), which excludes travel, transport and banking. The latest ONS statistics for ITIS relate to 2014 and the key points are:
10. In addition, the UK profession plays a key role in developing and maintaining technical expertise across the networks and associations of major international professional services firms.
11. Furthermore, ICAEW is directly supporting the development of expertise on the part of professional bodies and some regulators in the sphere of quality assurance monitoring, particularly in Southern, Central and Eastern Europe. This is part of ICAEW’s overall strategy to maintain qualification and training markets: ICAEW works in partnership with local bodies, thereby ensuring that ICAEW training requirements and local training can be aligned to some degree and thereby integrate international and national components.
12. The Single Market refers to the EU as one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. In principle, a functioning Single Market stimulates competition and trade, improves efficiency, raises quality, and helps cut prices. The profession benefits both directly and indirectly from thriving economic activity in the EU as a whole.
13. Two EU Directives – the Statutory Audit Directive (SAD) and the Directive on the Recognition of Professional Qualifications (RPQ) – currently provide a mechanism whereby UK-qualified auditors and chartered accountants can work without the impediment of full requalification in other EU member states (and EU auditors and accountants can do likewise in the UK). These Directives are critical not only for the mobility of individual ICAEW members: they also form the basis of country-specific agreements for market entry by ICAEW to offer access to ICAEW qualifications and training.
14. It is the case that trade in services, including accountancy services, has been far less integrated than trade in goods. This means, for example, that even within the Single Market framework there exists restrictions for certain taxation, audit, and finance services barriers to operate across the EU27. However, it should also be recognised that in all markets in Europe (and further afield) tax, accounting, governance will inevitably include national components: the international network and association structures in the accountancy profession reflect this, as does ICAEW’s strategy of working in partnership with local bodies.
15. Many of the competitive advantages the UK profession has extend back to the time before there was a single EU market for services. The free movement of skilled professionals across Europe has, however, benefitted UK firms. Increasing European and global harmonisation of regulations also allows services to be provided across borders. The skills of the UK profession also mean that for the most complex areas, even when they do not affect UK businesses, UK based accountants are often involved. For example, London-based accountants were involved in advising on the European Central Bank’s Asset Quality Review which applied to Eurozone banks. It is vital to the UK accountancy profession to avoid creating barriers to the provision of these services across Europe.
16. Recognition of professional qualifications both for audit and accountancy obtained in another EU Member State is essential to establish an internal market for professional services. The regime governing the recognition of professional qualifications is long-standing and has recently been modernised. As noted, this legislation is a critical foundation for the capacity of ICAEW to reach country-specific agreements for market entry and cooperation with local bodies.
17. In addition, ICAEW is part of the Common Content Project which is a collaboration between premier accountancy bodies with an aim to further develop, maintain and unify high quality professional accountancy education benchmarks reflected in the distinct qualifications of participating bodies. This will hopefully remain unaffected by the UK’s departure of the EU. A key goal of the project is the formation of a ‘common training framework’ under the RPQ Directive across ten EU member states
18. The Audit Regulation and Directive has come into force and establishes a competent authority for the regulation of auditors in each EU28. In the UK the competent authority is the FRC.
19. The amended Directive encourages the development of a level playing field for audit firms at EU level in order to foster more dynamic and open audit markets. Considering that many audit firms are part of international networks and that audited entities are also often part of an international group, establishing a minimum level playing field with regard to sanctions is an important step to ensuring the necessary convergence between different regulatory frameworks.
20. Cooperation and coordination is to be carried out at European level by a new Committee of European Auditing Oversight Bodies (CEAOB). The members of the CEAOB will include national audit supervisors and the European Securities and Markets Authority (ESMA). This has a positive effect on regulatory coherence.
21. Access to skilled labour from the EU and non-EU is a key issue for the accountancy profession and access to both skilled and unskilled labour from the EU and beyond is vital for the UK’s economy as a whole. At present, the free movement of people of EU nationals has had a positive impact on the sector and allowed to place the right people in the right positions in order to provide clients with a quality service.
22. ICAEW has approximately 5,500 of its members working in the EU outside of the UK and some 1500 students, the overwhelming majority of whom are non-UK nationals. 22,000 members work internationally in non-EEA countries, leaving approximately 118,500 living and working in the UK.
23. As a business, ICAEW itself has benefited from the free movement people, both in terms of employing EEA nationals in its UK offices and being able to hire EEA-wide staff in our Europe Region, in our Region Headquarters in Brussels as well as in Cyprus and Poland. office
24. The free flow of data across national boundaries is vitally important for services businesses, particularly larger firms of accountants who have clients located in the EU and beyond. The current legal and technical barriers constraining certain data to stay inside individual borders, particularly company data, tax data and book-keeping data, restrict trade and stilt growth.
25. The UK needs to join the debate to tackle unnecessary restrictions on where data is located to establish a consistent framework for data to flow safely and efficiently across borders.
26. In addition, with the new General Data Protection Regulation likely to become law before the UK leaves the EU, it is important that UK accountants are not disadvantaged by having to deal with individual national data regulators once it leaves, but the concept of equivalency will allow UK firms to continue to deal with EU27 as one block.
27. Similarly the UK will need to establish a position with regard to the current EU US Privacy Shield arrangement so as to not disadvantage UK services businesses.
28. There is a risk that UK auditors and chartered accountants will no longer be able to practise in other member states, or at least not as easily as at present. Mirroring this, EU auditors and accountants qualified in other member states may no longer find it possible to work in the UK or may encounter new hurdles.
29. Those considering studying for UK accountancy qualifications (and indeed UK qualifications more generally) may hesitate to proceed if it is uncertain whether holding the qualification will in future deliver the same recognition within the EU. Furthermore, the validity of existing in-country agreements enabling ICAEW to offer access to its qualification and training in European markets may be undermined.
30. The role and influence of the FRC within the CEAOB is likely to be diminished. This may result in a situation where the UK is a ‘rule taker’ as opposed to a ‘rule maker’ in the scope of possible future reforms of the audit market.
31. Each WTO member has a “schedule” of commitments for each of the agreements — including agriculture, industrial goods and services — setting out the terms on which it trades. Member states of the EU are bound by EU-wide schedules, negotiated by the bloc on their behalf. The UK could simply copy the EU commitments and slide seamlessly into membership exclusively in its own right, as long as no other WTO member objects.
32. The WTO’s General Agreement on Trade in Services sets out a framework for market access between WTO members. However, this offers limited liberalization and the accountancy profession would not benefit from trading under this framework as it currently stands.
33. The Trade in Services Agreement (TiSA) is a trade agreement currently being negotiated by 23 members of the WTO, including the EU. Together, the participating countries account for 70% of world trade in services. TiSA aims at opening up markets and improving rules in areas such as licensing, financial services, telecoms, e-commerce, maritime transport, and professionals moving abroad temporarily to provide services. Such an agreement would be beneficial for the accountancy profession and would be a more attractive option than operating under GATS.
34. Remaining a member of the EEA would retain the free movement of people which is a key concern for the profession. EEA membership would also involve the UK continuing to abide by the EU Directives, such as SAD and RPQ, which in turn would promote recognition rights both ways.
35. While we noted that market access in services was not as integrated as single market in goods, there would be advantages to remaining a member of the EEA for trade in services.
36. As noted in the introduction, the strength of the accountancy profession in the UK is directly related to the overall performance of the wider UK economy. Simply put, chartered accountants benefit when the UK is growing and in return chartered accountants help the further growth.
37. Uncertainty is the biggest threat to any type of business. Avoiding a legal vacuum following the UK’s formal departure of the – whether through membership of the EEA or via other means – is therefore of critical importance to the profession.
38. An FTA may be an attractive option if it provides for an effective commercial framework and avoids a ‘cliff-edge’ scenario following the UK’s formal departure of the EU. However this would depend on timing and the ability to strike an extensive FTA within the two year period following Article 50 having been triggered.
39. FTAs covering services are notoriously more complicated to secure than FTAs covering goods. Considering the UK’s competitive advantage in the services section, a UK-EU FTA would need to take consideration of the priorities of that sector, including from the accountancy profession.
40. As set out above there are a number of objectives for the accountancy profession:
41. As noted above, opportunities are created for the accountancy profession and the wider professional and business services sector, when the UK economy performs well. As the UK reshapes its role within international trade, government and business policy should be focussed on building a more agile economy that is well placed to respond to the challenges and opportunities that lie ahead.
42. The body of ICAEW students is increasingly international in make-up. As the UK Government begins to look internationally with increased intensity it should also promote new models of education and champion UK qualifications globally.
43. Working in partnership with the private sector, Government must create a more positive growth environment, to spur business investment, enable businesses to get online, and incentivise them to export.
44. To respond to the needs of companies – and especially to the needs of SMEs which are the lifeblood of the UK economy – we recommend the Government focuses on:
October 2016