On December 21, the United Kingdom and Switzerland formalised a pivotal agreement to fortify their financial ties. This comprehensive financial services agreement signifies a strategic move towards fostering increased trade and alleviating compliance burdens for banks, insurers, asset managers, and stock exchanges from both nations.
What is the deal about?
The deal involves:
- Mutual recognition of each other’s laws and regulations in financial services.
- Providing a smoother path for post-Brexit market access for entities such as banks.
- Insurers.
- Asset managers.
Chancellor of the Exchequer, Jeremy Hunt, and his Swiss counterpart, Karin Keller-Sutter, inked the treaty in Bern, Switzerland’s capital.
The culmination of over two years of negotiations, the agreement is designed to facilitate business relations between financial entities and affluent individuals in the UK and Switzerland.
With a focus on facilitating cross-border access to various financial services offered by banks, insurers, and asset managers, the deal operates on a deference model. This model permits firms to work in the partner country by adhering to a single set of regulations without the obligatory establishment of a local base. Consequently, financial service providers and insurers gain the flexibility to provide specific cross-border activities in both Switzerland and the UK.
Is this deal important?
In an interview, British Finance Minister Jeremy Hunt emphasised the significance of the newly signed deal, describing it as a “first-of-its-kind” highlighting a victory for post-Brexit Britain. He said such a deal would have been challenging to negotiate within the European Union framework.
Referred to as the Bern Financial Services Agreement, the mutual recognition accord, according to Hunt, serves as an influential blueprint for upcoming agreements with other nations. During a news conference, Hunt expressed the prospect of this novel trade agreement to set a precedent for future collaborations with various markets.
Karin Keller-Sutter accentuated the agreement’s role in maintaining and enhancing the long-term international competitiveness of the Swiss financial centre. She noted that a review of the deal after five years could potentially lead to its expansion.
The deal marks a substantial advancement for Switzerland, which has never been in the EU. In 2022, Switzerland became the global leader in cross-border wealth management for private clients, with 2.2 trillion Swiss francs ($2.6 trillion).
Like the UK, Switzerland has been redefining its relationship with the EU, its immediate trading partner, which often inflicts unilateral rule compliance on its European counterparts.
The concept of mutual recognition, embedded in the agreement, allows financial regulators in both countries to defer to each other’s rules. This enables financial firms to operate in either market, following a single set of regulations, without the obligatory establishment of a second office.
The agreement reflects a notably higher level of reciprocal trust in each other’s regulators than the EU’s approach toward Switzerland and the UK post-Brexit. This approach circumvents the need for strict legal alignment of rules between the parties involved.
David Henig, the UK director at the European Centre for International Political Economy, saw this deal as incredibly positive.
Meanwhile, Switzerland is trying to jump back from reputational challenges in its financial services sector, instituting the collapse of Credit Suisse in March.
The dialogues between the UK and Switzerland were set in motion by the current UK Prime Minister, Rishi Sunak, in 2020 when he served as Finance Minister. Sunak stressed that the agreement reflects a shared vision of an “open, global, and free” economy between the two nations.
The current Conservative government in the UK consistently highlights signing new trade deals as a notable Brexit benefit. In June, Britain sealed an agreement to join an 11-nation Asia-Pacific free trade bloc, including Australia, Singapore, Japan, and Canada. This marked Britain’s third new trade deal since formally leaving the EU on January 31, 2020.
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