Financial Services and Brexit: Navigating Towards Future Market Access

This article focuses on the consequences Brexit will have for cross-border financial services between the EU and the UK after a possible transition period. In light of the uncertain results of Brexit negotiations, we analyse the future regulatory framework for commercial banking and clearing services in two scenarios. In the first scenario, the EU and the UK do not agree on a free trade agreement (FTA) so that market access will depend on unilateral market access provisions (no deal scenario). This would probably cause serious market disruptions because financial services providers on both sides would lose their privileged passporting rights and be treated as third country providers. In order to avoid this, the EU and the UK can enter an FTA (deal scenario). As to this second scenario, the article discusses five models for an FTA regarding financial services ranging from no access to full access and corresponding to divergent degrees of regulatory alignment. The analysis of both scenarios considers the boundaries set by the GATS on an international level. With regard to a possible FTA granting mutual market access for financial services, we develop a margin for modelling an FTA between the legal limitations of the GATS and the legal-political limitations of the EU-EEA market integration.