Marl Hoban, speaking at the Jersey Financial Services Commission annual review, also warned that the Island needed to be ‘mindful’ that the UK could become a rival finance centre in the post-Brexit world, albeit not deliberately, as it seeks to make itself more competitive in the global economy.
The former UK treasury minister said, however, that he did not expect to see a ‘big-bang change’ and that divergence between EU and UK regulations in the future was likely to take place on a ‘case-by-case’ basis.
The UK and EU agreed their trade deal, which is still subject to a cooling-off period, on Christmas Eve. Financial services had relatively little coverage in the accord, which was widely viewed as limited in scope.
Mr Hoban said he thought that the lack of a substantial deal for finance meant it was more likely that the EU and UK would part ways on regulation for the sector. One consequence of this could be London attempting to make itself more competitive as a business centre.
‘Last year I flagged up that Brexit would potentially be a big issue for the Island and the financial services sector,’ he said.
‘What we have seen over the course of the last year is that, rather than going for a rich and deep relationship on financial services, the UK and EU have gone for a very narrow and shallow relationship.
‘And that poses a challenge for us because the narrowness of that relationship means that there is an increased risk that both the UK and the EU will diverge from the rules and the regulations that they have previously agreed to.
‘How will our relationship with the UK change? In the past we have talked about it being a symbiotic relationship, one that is of mutual benefit between Jersey and the UK. Will that continue or will we end up competing with each other? Not as a matter of deliberate policy choice by the UK but as a consequence of the actions they take?’
Jersey has never been part of the EU and the Island’s finance sector has, over the years, forged ‘equivalence’ agreements, which closely mimicked those of the union, to allow access to European markets.
Mr Hoban said the UK would probably diverge in the future from EU regulations, to which it remained aligned at this time, and that this could leave Jersey with choices to make about whose rules to follow.
‘We need to reflect that we worked before by being equivalent with EU rules. As the UK and the EU diverge from the previously settled consensus, that creates different challenges,’ he said.
‘Let me give you a very small example of this. In Jersey’s commission, we supervise auditors and the regime we have is equivalent to EU rules. So what happens when the EU change their rules or the UK change theirs?
‘Whose rules do we need to remain aligned to, if we can’t have equivalence with both sets? That’s a very small example but it reflects the way in which Jersey’s rules and regulations are interlocked with those in the UK and the EU.
‘I don’t know whether there will be a big-bang change. I suspect there won’t be. But I think what we’ll end up doing is working on a case-by-case basis as the UK or EU change their rules. And the commission, the government and the Island will need to make choices about alignment to reflect the economic wellbeing and best interests of Jersey as a financial centre.’