Enhancing international trade in regulated services (retail banking in Australasia) | Fieldfisher
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Enhancing international trade in regulated services (retail banking in Australasia)

Andrew Hood


United Kingdom

With the likely departure of the UK from the EU, and with a 'hard Brexit' becoming increasingly likely, the UK is looking to strike new trade deals, and many British companies are looking for new market opportunities wherever they can be found in the world.

With the likely departure of the UK from the EU, and with a 'hard Brexit' becoming increasingly likely, the UK is looking to strike new trade deals, and many British companies are looking for new market opportunities wherever they can be found in the world.  And given the UK's economy is substantially dependent on the services sector, there are some clear questions arising as to how UK services firms can expand into new markets. 

Trade negotiations between states have traditionally focused on the reduction and removal of tariffs on goods, but these days modern FTAs sometimes remove barriers for trading services (i.e. remove local rules that act as barriers to competition).  Negotiating access for UK services would also be considered an important and obvious 'win' for the new 'global Britain' post-Brexit.

Trade in services is broad.  It covers the areas like insurance, creative industries, retail banking, legal and accountancy services, etc.  There are potential new markets for all of these areas.  Countries such as the United States, Australia, Canada, New Zealand, Singapore, etc, are all obvious and natural markets. There are also emerging markets, particularly in Africa and Latin America, where UK firms could offer huge value with their competitive and innovative products. 

The potential is clearly illustrated even if we take just one example of a regulated services sector and focus on one potential integrated market; retail banking and Australasia respectively.  This is an area where Fieldfisher has been particularly active, and where we have benefitted from engaging with leading trade and industry figures in the UK/EU and in Australia/New Zealand.

One major obstacle against trading in services into new markets is the regulatory barriers and laws that apply in different countries.  In the context of retail banking in Australia and New Zealand, specific laws and regulations make it tough and uneconomic for British firms to become registered and established and deliver retail services. 

Some examples of regulatory barriers that apply in Australasia include rules around ownership of banks (i.e. that local citizens must have control of financial services companies), limitations on deposit-taking for banks, specific limitations on the provision of insurance products, insurmountable practical obstacles to central bank licencing, and conflicting (partly insufficient) local standards on privacy, competition, anti-money laundering, anti-bribery, etc.  These barriers make it difficult or impossible for UK banks to register with the central banks of New Zealand and Australia to the extent necessary to deliver retail services, or otherwise to participate fully in the market.

In Australasia, regulatory barriers have safeguarded large parts of local the financial services markets for the existing participants in those markets (namely the 'big four' banks in Australia and New Zealand which dominate retail banking).  The safeguarding has arguably been to the disadvantage of the local economies (both economically with high costs for services, and through a lack of innovation in delivering services given the lack of competition from start-ups).  Therefore, the agreed elimination or substantial reduction of specific barriers to market participation in retail banking would enable greater direct participation in those new markets by British firms, and would enhance positive competition, product innovation and better regulation (i.e. reduced money laundering, etc) in those local markets for the benefit of local consumers.  

However, elimination of specific protective measures is not the only thing which might improve the levelness of the playing field.  In many areas, the regulatory framework for financial services in Australia and New Zealand is somewhat behind that of the UK and EU.  For example, Payment Services Directive, of which there is no functional equivalent in Australasia, required UK banks to share data with other banks, with a view to substantially enhancing transparency and competition between banks for the benefit of consumers.  Noting that British services firms are required to meet the UK's high standards of financial services regulation through the extent of their worldwide operations, they are at a further disadvantage to local retail banks in Australasia.  There is a strong case to be made for the UK (and EU) to push for their higher common standards of regulation in services to be met as a condition of any wider trade arrangements being agreed (i.e. take our banks and we will take your products and goods).

UK and EU laws that regulate the financial services market, for example the Banking Prudential Requirements Directive, Payment Services Directive, GDPR, the Anti-Money Laundering Directive, MiFID II, etc, are widely considered to represent some of the highest standards of regulation in services.  These are matters that would impact upon the operations of local firms in markets where the UK is seeking regulatory alignment (both economically in terms of potential for new competitors, as well as in a regulatory sense, in terms of their direct obligations).  However, greater alignment in these areas would potentially have substantial advantages in general areas of trade and investment between markets and the UK and EU, and would improve choice for local consumers.  Economic savings might be better invested in productive areas of the economy. 

Save for possible concerns about over-alignment with the UK financial system, in an all potential markets, leading UK services firms have the potential opportunity to deliver local provision of their world-leading fintech and traditional financial services products.  There is a very exciting picture to be painted with companies such as Revolut, TransferWise, Monzo, etc, having improved potential for people in developing economies to access electronic banking, remittances, e-commerce, secure finance, etc, for the first time ever, with only a mobile phone.  Just consider how enhancing accessibility to retail digital banking will boost economies that are currently inhibited by the flow of paper cash, the improved ability of states to collect revenues, new opportunities for e-commerce, etc…

In researching opportunities in this area, Fieldfisher has been engaging with firms, regulators and representative groups who would be impacted by the proposed trading terms.  We can help UK firms, in all areas of trade (goods and services), to pursue trade terms with new markets that will assist in real growth.  We also work with local law firms around the world to improve our understanding of local regulatory barriers, which are strategically relevant for firms that are looking to expand to those markets.