UK must not sacrifice the City’s openness in tit-for-tat with the EU

Throughout the negotiations over Britain’s departure from the EU, there has been plenty of talk about hard and soft borders. Mostly this has centred on the frontier between Northern Ireland and the Irish Republic. But there is another soft border that has attracted rather less attention; and that’s the one which surrounds Britain’s financial system itself.

The UK is unusual in the way it opens its markets to all comers. Take, for instance, the so-called “overseas persons exclusion”. Since the 1980s this rule has permitted foreign firms to trade freely in UK-based wholesale markets, without needing to register locally, or even to come from a home country with equivalent regulations. The one requirement is that those who do so cannot physically operate on UK soil.

This liberal regime has worked well for the City of London, drawing liquidity to its markets and helping to cement it as a global financial centre. It is one reason why the UK plays host to so many components of the plumbing that connects modern finance. But a mixture of Brexit and modern technology are causing some to ponder whether a more obtrusive perimeter might be needed.

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