UK Chancellor Jeremy Hunt and Swiss counterpart Karin Keller-Sutter have signed the "first of its kind" Berne Financial Services Agreement to strengthen ties between two major European banking centers.
Hunt celebrated the agreement as a post-Brexit triumph, attributing its success to the newfound "freedoms" acquired after leaving the European Union. Previously, the financial services relationship between the UK and Switzerland operated under the umbrella of EU regulations despite Switzerland being a non-member of the bloc.
Finally confirmed, the UK-Switzerland financial services mutual recognition agreement. I'm quoted in this FT story. Broadly good news, because this is a sector where we have regulatory heft. It might be the only one though... https://t.co/2FNV7k0tDS
— David Henig 🇺🇦 (@DavidHenigUK) December 20, 2023
Treasury data show a 53 percent growth in UK-Switzerland trade for financial and insurance services between 2016 and 2022, bringing the total to £3.28 billion by 2022. Brexit could have severed this vital financial link between the UK and Switzerland, underscoring the significance of the negotiated treaty.
UK Prime Minister Rishi Sunak initially launched talks with Switzerland in 2020, when he was finance minister, claiming that the accord would demonstrate the countries' shared vision of an "open, global and free" economy.
Through the agreement, the UK and Switzerland will reciprocally acknowledge each other's domestic laws and regulations in financial services. This simplifies business interactions between corporate entities and high-net-worth clients in both markets.
The Conservative government in Britain has consistently highlighted the signing of new trade agreements as a major advantage of Brexit. Previously, in June, the country entered another agreement to join an 11-nation Asia-Pacific free trade bloc, which includes Australia, Singapore, Japan and Canada.
Agreement details
The Berne Financial Services Agreement facilitates seamless cross-border delivery of financial services between the UK and Switzerland, covering sectors such as asset management, banking and investment services.
The agreement also ensures exclusive access for British insurance brokers into the Swiss market. Starting in 2024, Switzerland will mandate non-Swiss firms to set up a base within the country to cater to Swiss clients. However, the UK will be the sole country exempt from this requirement, granting British brokerage firms a substantial edge over international competitors as they can maintain their business practices without change. This arrangement is referred to as a "deference" model.
The terms also enable Swiss firms to cater to affluent individuals in the UK, operating either locally or across borders. At the same time, UK advisors will have the authorization to "temporarily serve" affluent clientele within Switzerland without the need for registration in the country.
"This is a new type of trade agreement that we can use as a model for future agreements that we have with other markets as well," Hunt said during a news conference announcing the deal.
According to Hunt, the proposals can serve as a "light-touch, progressive, future-leaning way of opening access" that could notably benefit the City of London. Additionally, Hunt suggested the possibility of extending the agreement in the future to cover retail and sustainable finance.
Approval and reception
Before taking effect, the agreement will require approval from the legislatures of both nations. Nevertheless, several commentators already expressed optimism that this deal could represent an improvement from the previous deal with Switzerland.
David Henig, the UK director at the independent think tank the European Centre for International Political Economy, described the deal as "broadly good news" that could boost Britain's influence in financial services.
Miles Celic, head of TheCityUK lobby group, said the agreement sets a pioneering benchmark for major financial centers to collaborate, leading to a "more resilient, competitive and interconnected global financial landscape."
Apart from the Berne Financial Services Agreement, the UK is currently in negotiations for an expanded Free Trade Agreement with Switzerland, aiming to strengthen connections and cover comprehensive trade across both nations.