This week the UK Minister of State for Trade Policy Greg Hands MP is in the United States to kick-start free trade agreement negotiations. Long discussed as a possible outcome of the UK’s divorce with Europe, a bilateral trade agreement between the US and the UK can be mutually beneficial.
According to a government release, Hands will be meeting with business and industry leaders in the US as well as US government representatives in New York, Pennsylvania, and Washington, DC. In New York, Minister Hands is attending a meeting with the Manhattan Institute, followed by a roundtable with BritishAmerican Business as negotiations accelerate.
The US is the UK’s single largest trade partner with total trade estimated at £221 billion in 2019. A trade agreement may boost this number by £15.3 billion, according to UK officials. Kicking off this month, negotiating rounds will alternate between the UK and US. Trade agreements can be very complex.
Hands said the deal will benefit people on both sides of the Atlantic.
“It will scrap unnecessary red tape, bring more opportunities for businesses, lower prices and create better jobs in the UK and the US.”
Last week, the UK published its negotiating objectives for a free trade agreement with the US.
Prime Minister, Boris Johnson commented at that time:
“We have the best negotiators in the business and of course, we’re going to drive a hard bargain to boost British industry. Trading Scottish smoked salmon for Stetson hats, we will deliver lower prices and more choice for our shoppers. Most importantly, this transatlantic trade deal will reflect the unique closeness of our two great nations.”
At least from a high level, an “ambitious and comprehensive free trade agreement” can strengthen the economic relationship between the two countries, promoting increased goods and services trade and greater cross-border investment. Clearly, trade opportunities can benefit both sides.
A mutually agreeable trade agreement should increase UK GDP by opening up opportunities for businesses and investors while facilitating greater choice and lower prices for producers and consumers. The same can hold true for US consumers and businesses.
But what of Fintech? Both countries are leading global financial centers with robust and well-established Fintech sectors – the future of finance.
Digging into the UK negotiations document and Fintech is referenced as an area of interest.
Requests from the financial services sector, including asset management, banking, insurance, capital markets and financial technology (Fintech), highlight the importance of financial services to a bilateral trade agreement, according to the document.
To quote the negotiations document:
“Thirty-three business associations were of the view that trade in services should be treated as a priority in any potential UK-US FTA [Free Trade Agreement], with 13 business associations raising the facilitation of access to the US market as a key priority. Eight respondents commented on the need for mutual recognition of services standards. Some business associations identified that an FTA should support the strengthening of ties and co-operation between UK and US financial centres. Business associations were particularly supportive of greater regulatory dialogue and co-operation between financial regulatory authorities in the UK and US. Some business associations also put forward specific suggestions for deeper co-operation, which included calls for increased co-operation on emerging technologies such as Fintech and crypto-assets [digital assets]. More widely, business associations highlighted the importance of cross-cutting trade issues relevant to financial services, particularly IP, source codes, data localisation and ISDS. The importance of further liberalisation of cross-border business travel and MRPQs was also raised as priorities.” [emphasis added]
With 2.3 million people employed in UK financial services, the UK government seeks to expand opportunities in financial services and to ease cross border investment and cooperation on regulatory issues. Fintech must be part of this conversation.
Last August, the Digital Finance Forum (DFF) said UK Fintech leadership is at risk in light of Brexit. Referencing a survey, Christian Faes, Chairman of the DFF, said at that time:
“The UK must not be complacent about being the world leader in Fintech – and there’s definitely a feeling from Fintech founders, as revealed through this survey, that this threatens to be the case. There is clearly an opportunity with the new government to make the Fintech sector a priority again.”
Last year, HM Treasury, the Department for International Trade, and Innovate Finance, joined together in publishing a report entitled “UK Fintech State of the Nation.”
The report indicated that over 1600 Fintech firms were operating in the UK and the number was predicted to double by 2030. Approximately, 76,500 people are employed in the UK Fintech sector. Fintech is estimated to contribute £6.6 billion to the UK economy every year and that number is growing.
To quote the report:
“The UK has long been at the forefront of financial services. However, in more recent times, the sector’s positive response to the fourth industrial revolution has truly set us apart. The perfect storm caused by growing technology demand, right touch regulation, and customer empowerment in financial services, coupled with the sector’s response to the financial crisis, has fuelled Fintech’s rapid growth in the UK and its expansion globally.”
While many point to the UK as the world’s leading Fintech hub, the country cannot remain complacent in this leading position as a location of excellence when it comes to innovations in financial services.
A more harmonized regulatory environment for Fintech, and financial services in general, would be beneficial to both the US and the UK reducing regulatory friction while ensuring sufficient investor protection requirements. It could also be a roadmap for future agreements with other global jurisdictions.
Hopefully, both sides will recognize the benefits of working more collaboratively in the financial services sector while setting a precedent for future bilateral agreements. A free trade agreement that creates a bridge between the two countries’ financial centers will make both ecosystems stronger.