Open financial markets –the UK and Switzerland demonstrate it can be done
Current stock market decisions as part of an ambitious project
The UK Treasury has announced that it intends to recognise the Swiss stock exchange as equivalent. A resolution to this effect has been submitted to UK Parliament and is expected to come into force at the beginning of February. As a result of this step, the main restriction on trading Swiss shares on Swiss exchanges will be lifted for the UK. This should lead to Switzerland also recognising UK trading venues again and allowing Swiss shares to be traded there. Unlike the EU exchanges, the UK exchanges are then to be removed from the negative list of jurisdictions contained in the Federal Council’s “Protective Ordinance”. This will make it possible to trade Swiss shares in the UK again.
The steps towards the mutual bilateral recognition of trading venues are welcome, but they should not be looked at in isolation. They are part of broader ambitions in the area of financial services, where concrete progress is being made in the bilateral relationship between the UK and Switzerland.
Last year, the two financial centres committed to open markets: in April, the relevant UK and Swiss associations published a comprehensive industry paper that sets out their demands regarding targeted steps for mutually opening the market for the financial services industry. These asks were communicated to and heard by the financial authorities of the two countries. On 30 June 2020, the Finance Ministers of the two countries signed a Joint Statement that serves as the basis for an ambitious project aimed at largely eliminating barriers to market access. Such barriers exist primarily in the banking sector. During a video conference on 27 January, the two finance ministers, Ueli Maurer and Rishi Sunak, reiterated that they intend to press ahead swiftly with the negotiations on a corresponding agreement. The momentum is strong on both sides.
Mutual market opening as a goal
The UK and Switzerland, which have the two most important financial centres in Europe, are committed to open markets and are taking concrete steps in this direction. In both financial centres, major financial services providers also cater to legitimate customer needs that exist across borders. The agreement envisaged in the Joint Statement aims to facilitate the expedient and efficient provision of cross-border financial services. To make this possible, the two financial centres are working together on solutions that are in their mutual interest.
It is interesting to note that in the area of licensing and supervision of the cross-border activities of financial intermediaries, a conviction prevails on both sides that mutual outcome-based equivalence of the regulatory and supervisory framework should be striven for. This is the best way to serve the relevant and important interests to be protected. The focus here is on customer protection, integrity, stability and a level playing field. The UK and Switzerland are looking to bilateral cooperation with the aim of not only mutually recognising the equivalence of each other’s regulatory levels and introducing this where required, but also maintaining this equivalence in the long term (mutual recognition). This is considered to be more effective and reliable than striving for largely identical regulations or nothing more than unilateral equivalence decisions. Such decisions are implicitly one-sided, possibly arbitrary and can be revoked.
The UK and Switzerland are demonstrating what should also be of interest elsewhere
Behind the ambitious and challenging bilateral project between the UK and Switzerland lies, in particular, a clear commitment to the advantages and opportunities of open markets. The goals to be achieved are (re)opening trading venues, free flow of capital, cross-border deployment of expertise, avoiding fragmentation and healthy competition that creates added value. This is challenging, but worthwhile and possible. Shared interests also exist with regard to forward-looking topics, such as sustainable finance, the fight against cybercrime or digital innovations in the financial sector. Bringing major financial centres together unlocks potential in areas that would otherwise not be leveraged, or at least not optimally. All of this is part of the closer cooperation envisaged in the Joint Statement.
Looking at the EU, one has to conclude that its “third-country perspective” for the financial services industry is more likely to create obstacles than to remove them. Pending equivalence decisions are delayed or blocked by being linked to unrelated matters. The case of the Swiss stock exchange is only one example thereof; the same applies in numerous other areas. The Swiss financial centre is not the only third country that sees potential for improvement in this respect. In the further negotiations between the EU and the UK, this is likely to be one of the difficult matters covered. Criticism can also be heard from the US in certain areas. If looked at in detail, the question arises as to whether the EU’s approach will not ultimately bring it and its investors more disadvantages than advantages.
Rethinking deadlocked approaches and being more open to new ways of developing good and robust relationships with key financial centres outside the EU would also be good for the EU. As financial centres, the UK and Switzerland are part of Europe. Having a close and constructive dialogue to find ways to collaborate is in the interest of the EU – isolating itself is not. It remains to be seen whether steps in this direction will be taken in the planned “post-Brexit” Memorandum of Understanding between the UK and the EU on financial services. When it comes to relations between the EU and Switzerland, which are already closely interconnected in numerous sectors, pragmatic approaches such as those currently exemplified by the UK and Switzerland should also be on the agenda in due course.