Release Date: September 15, 2016 
Contact:  Carol Danko [email protected] (SIFMA)
Jeff Sigmund, [email protected] (ABA)
Laena Fallon, [email protected] (FSF)
Alison Hawkins, [email protected] (FSR)

Financial Trade Associations Urge U.S. Treasury to Work with UK and EU on a Brexit Transition without Market Disruption

Washington, D.C., September 15, 2016 – Financial Services trade groups SIFMA, American Bankers Association, Financial Services Forum, and Financial Services Roundtable sent the following letter today to U.S. Secretary of the Treasury Jacob Lew urging the U.S. Treasury Department to work with its counterparts to ensure a smooth and transparent Brexit transition process that minimizes the impact on global markets. The letter was announced this morning by Kenneth E. Bentsen, Jr., SIFMA president and CEO, at SIFMA’s 2016 Brexit Symposium in New York in his opening remarks. 

September 15, 2016

The Honorable Jacob Lew
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220 

Dear Secretary Lew, 

We, the undersigned associations, wish to offer you our support as you work with the European Union (EU), the United Kingdom (UK) and other G20 partners in ensuring that the global economy is resilient to the UK’s expected exit from the EU (“Brexit”). 

Brexit will have a major global impact. To be sure, this is a matter between the people and governments of the UK and the EU.  Because of the size and importance of the UK and EU markets, our member firms are monitoring events closely. Indeed, they have substantial investments in the UK and EU and rely upon the single passport to service customers and clients across the EU. 

Before formal negotiations begin, we ask you to convey to your UK and EU counterparts the importance of maintaining market stability throughout the process. In particular, it is critical to carry out negotiations in as open and transparent manner as possible and to avoid disruption and uncertainty for market participants. To facilitate a smooth Brexit transition, we ask you to encourage UK and EU policymakers to ensure the process includes a transition period that will provide firms with ample time to navigate and adapt to any institutional or legal changes underpinning well- established inter-EU/UK trade and investment relationships. Establishing such a guaranteed provisional period to ensure continuity of service to customers and clients is the best way to limit the potential negative impact on financial stability. 

The importance of the UK and EU to the U.S. financial services industry  

The UK is of huge importance to the international financial system. The contribution of London, in particular, cannot be underestimated and not easily replicated elsewhere. Indeed, more than three-quarters of EU capital markets transactions are conducted in the UK while over one-third of EU wholesale activity in financial services occurs in London. Over 40 per cent of United States (U.S.) exports of financial services destined for the EU go to the UK. The U.S. financial services industry therefore derives much value from the UK’s existing relationship with the EU, including the millions of jobs in the U.S. created directly and indirectly by UK and EU firms with substantial U.S. operations.

At the same time, the EU represents an economic area comparable in size to the U.S. and of vital importance to the global economy. The relationship between the EU and the UK therefore is of critical importance to the U.S. which has a significant vested interest in how the future relationship is redefined and in the certainty, stability and transition components of the path to implement the new trade and investment relationship. 

Ensuring U.S. and global growth are resilient to Brexit  

Brexit, if not managed effectively, represents a significant risk to the financial markets and global economy. U.S. and internationally headquartered firms have invested substantially in the UK. In particular, the fact that U.S. and internationally headquartered firms are so heavily concentrated in the UK, most notably within the City of London, is heavily influenced by the existence of passporting rights between the UK and the rest of the EU, allowing financial firms based in the UK to operate freely, and to contribute to European economic growth. UK and EU banks similarly make an important contribution to the U.S. financial system and economy through their substantial presence in the U.S. We therefore strongly agree with your aspiration to see “an outcome that produces a highly integrated relationship between the EU and the UK” and wholeheartedly concur that such an outcome “is in the best interests of Europe, the United States and the global economy.” 

In getting there, it is vital for the prosperity of the U.S. and world economies that uncertainty is kept to a minimum and that existing trading relationships are disrupted as little as possible. As the negotiations between the UK and EU begin, we would strongly support you urging your counterparts to ensuring the process include a number of important features. It would be optimal if: 

• Brexit negotiations are conducted in as transparent a fashion as possible and all sides work together to deliver a functioning solution for all parties;
• stakeholders from the business community – including both U.S. and internationally headquartered financial services firms – with a presence in the UK and the EU as well as UK and EU firms with significant U.S. operations are actively consulted about the issues to be addressed and the potential impact of solutions under consideration;
• both sides seek to embed future arrangements in global standard setting (e.g. those initiated by the Bank of International Settlements, Financial Stability Board and the International Organization of Securities Commissions);
• to minimize uncertainty, as early as possible in the Brexit negotiation process, policymakers establish a timely provisional, transitional arrangement to help financial services firms to navigate and adapt to any institutional or legal changes underpinning inter-EU/UK trade and investment relationships. Such an arrangement should be flexible to allow it to be extended, if necessary, to avoid market disruption and financial stability risks. 

Conclusion  

While Brexit is fundamentally about the UK’s relationship with the EU, its consequences are likely to be significant and far-reaching. U.S. policymakers have a legitimate stake in how the process is managed and the outcome to which it leads. Our members therefore stand ready to share with you their expertise about the functions of the markets and the potential effects of policy choices under consideration as well as other support that you identify as needed to ensure economic growth and stability. 

The financial services industry seeks to continue to play a full-role in the economies of the EU and the UK. Encouraging both sides to establish a clear and early transitional arrangement, that takes into account consultations with the financial sector, for the UK’s exit and also promoting a new relationship that retains as many of the beneficial features of EU membership as possible, will help it to do so.  

Sincerely, 

Robert S. Nichols
President and CEO
American Bankers Association  

John Dearie
Acting Chief Executive Officer
Financial Services Forum  

Timothy Pawlenty
President & CEO
Financial Services Roundtable  

Kenneth E. Bentsen, Jr.
President & CEO
Securities Industry and Financial Markets Association  

Cc:

The Honorable Nathan Sheets, Under Secretary for International Affairs, United States Department of the Treasury
Douglas Bell, Deputy Assistant Secretary for Trade and Investment Policy, United States Department of the Treasury