It is apparent that the future arrangements for the City of London will be a key battleground of the Brexit negotiations, albeit that the deal for UK/EU traded goods and other services is more important in the aggregate. And it is disappointing that some diehard members of the Remain camp have deliberately continued to exaggerate the potential costs to the UK of the loss of Passporting. Much of the access which Passporting provides will be replaced under the EU’s own Equivalence regime in 2018. What’s more, just as the UK – as an EU member – has been able to conduct wholesale financial transactions with non-EU countries, especially the USA, so, too, EU members should be able to conduct similar wholesale transactions with the City of London when the UK is a non-EU member. While financial services are our largest industry, employing 2.5 million people, and delivering £66 billion per annum in tax, only a fraction of this is vulnerable to the loss of Passporting. Most other City services, particularly asset management, currency dealing, hedge funds, insurance and private equity management, together with huge professional services, will be little affected. Only a fraction of international banks’ activities in the UK use Passporting. Passporting is intended to protect consumers where the main international banks and investment banks in the City of London deal largely with each other or with leading business corporations. Since Passports were introduced, moreover, the growth of UK financial service exports to the EU has stalled. UK financial exporters also sell without Passports to their largest markets, Switzerland and the US. Overall, approximately 50% of our financial services are exported, of which 30% (i.e. 15% of the total) are EU exports worth of the order of £30 billion per annum. Over 80% of investment management exports and insurance exports are to non-EU countries – largely North America and Asia. Most of the investment management industry has already structured its EU Retail Fund offerings as Luxembourg SECAVS or Dublin UCITs. The main area of vulnerability to the loss of Passports is banks and investment banks where, given the participation of EU banks in London, there are strong self-interest arguments for a sensible EU deal. The FCA has found 5,476 UK firms dependent on Passporting into the EU but 8,000 EU firms needing Passporting to do business in London. It is also apparent that if an EU institution chooses to come to London to use the services of a London institution, e.g. to raise funds, the EU could not stop them so doing without introducing specific protectionist rules. The EU cannot afford to dispense with London’s money raising services, which last year represented 85% of pan-EU capital financing. As EU Commissioner Barnier realises, the EU needs the City of London more than vice versa. I think it unlikely that the EU will be able to develop an offering for single market Passporting which would leave the UK with sovereign power over its financial regulation law and which would exempt the UK from accepting the free movement of people. The EU was, however, effectively obliged to accept that foreign providers could export financial services to the EU if their regulatory regimes were broadly equivalent. Continental Europe, as well as the UK, needs to be able to access the financial services of, for example, Asia, when required. MiFID II, which comes into operation in 2018, provides an Equivalence regime for both investment banking and investment management. Interestingly, Equivalence operates already with regard to banking services where the Bank of England did not participate in the EU banking reforms of two years ago, but rather organised its own, broadly equivalent, arrangements. The EU Equivalence AIFM Passporting arrangements are already set to be agreed later this year for Hong Kong, the US and the Channel Islands, covering, in particular, Hedge Funds. Equivalence access will involve a significant amount of detailed agreement as to what constitutes Equivalence. But if, as is likely, the UK writes all existing EU financial regulation into UK law post-Brexit, there should be little initial problem with the EU accepting UK Equivalence: but if, as will be desirable over time, the UK gets rid of excessive and unnecessary regulation, there will have to be negotiations with the EU Securities and Market Authority (ESMA) that adequate EU Equivalence remains. Also, in addition to the point that the many continental EU banks and other financial services businesses in the UK will need matching access to the UK market, there is also the important issue of branches versus subsidiaries. Most of the large UK financial institutions have subsidiaries within the EU, but even more EU organisations have branches in London. If EU entities were required to establish subsidiaries in the UK, this would be extremely costly. There are over 70 EU banks in London under “branch Passports” and thus not under PRA regulation. The MiFID II Equivalence access will include banks and investment banks and should, therefore, enable branch operations to continue both ways. Equivalence access arrangements will need to be registered with ESMA. Already Australia, Bermuda, Hong Kong, Mexico, Singapore and the US have achieved deemed EU Equivalence for re-insurance services. Moody’s has already argued that the City can cope reasonably without Single Market Passporting – rather using Equivalence access. Where there are any specific EU country requirements which may limit the scope of Equivalence access, the larger investment banks could surely use their subsidiary operations within the EU to book the business, with the work being done in London. What is apparent from the almost laughable near failure of Canada’s trade negotiations with the EU, is that any deal with the EU which requires the agreement of the EU’s 27 members (and, potentially, also their subsidiary Parliaments) may not be viable. The most promising combination looks to be for the UK to offer a zero tariff regime for goods and services to the EU with likely reciprocity in response; combined with some streamlining of the existing Equivalence access for financial services. The City, anyway, has the challenge of increasing its business with other parts of the world, where growth in EU business has stalled since Passporting was introduced. Here, a greater presence by London institutions in Asia is needed. I thought at the time that it was a mistake by the Government and Bank of England not to have supported Barings nearly 20 years ago, the result of which has been inevitably both to reduce potential Asian interest in UK financial services and to reduce the City’s ‘on the ground’ presence and involvement in Asia. My vision for the City in the future is as a “super Singapore” or a “super Hong Kong”, remaining the financial capital of Europe but with the freedom to develop its business with other parts of the world. I do not believe that Frankfurt or Paris is capable of competing with London, as Frankfurt discovered several years ago.