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City gets most of what it wants from Theresa May's Brexit

Has the City got most of what it asked for from the Brexit deal? Credit: PA

Before it all kicks off, and we all go nuts working out whether Theresa May's Brexit bears any resemblance to what Boris Johnson and Michael Gove promised when they ran the campaign to take the UK out of the EU, here is what has been negotiated on behalf of the country's single biggest international industry, financial services, or the City.

I am reliably told that just a few lines in the Outline Political Declaration on the UK's future relationship with the EU - which itself runs to just five pages - shows that the City has got most of what it requested.

I understand that for around 80% of the City's business with the rest of the EU - mostly investment banking and so-called clearing (or processing of deals) - it would be business as usual if May's deal is approved.

That is because those businesses, which are governed by the EU's MIFID ll and EMIR directives, will be subject to an "equivalence" regime.

It means cross-border business out of the City and into the EU between professionals in capital markets (bonds and derivatives for example) can be managed in London and at negligible extra costs (because "netting" or offsetting of positions in the UK and elsewhere in the EU will still be possible).

Our financial services industry, or that portion which exports to the EU, will of course be a rule taker: the EU would have the power to determine that investment banks and clearing houses in London no longer follow rules "equivalent" to theirs, and could therefore curtail their rights to export to the EU.

It appears for around 80% of City businesses it will be business as usual. Credit: PA

But very importantly the UK Treasury has negotiated an arrangement whereby the EU cannot simply withdraw permission to trade overnight or in an arbitrary manner.

If the EU were to believe that UK and EU rules and regulations had diverged significantly, there would be a formal codified review process involving submissions from both sides, giving UK businesses both the ability to state their case and the time needed (probably several months) to prepare for the worst.

As I said, for those running City institutions, this outline deal - which will be nailed down in negotiations during the 21-month transition after Brexit on 29 March next year, and which is supposed to be finalised six months before the end of that transition - gives them most of what they want.

And for them the corollary is that a no-deal Brexit could wreak havoc.

But it's not all good news for them - or the British economy.

It's not all good news for the British economy, however. Credit: PA

You will have spotted that some quite important business, namely commercial banking, retail banking, fund management, private banking, personal insurance, and wholesale insurance, will not be covered by the promised equivalence regime - which means that if they wanted to continue to do business in the EU, they would have to set up separately capitalised subsidiaries in the EU, and conduct the business out of those subsidiaries.

It means that jobs and capital that are not in investment banking or clearing would flow out of London to Dublin, Frankfurt, Paris and other EU financial centres.

But the bulk of cross-border business is not in commercial banking, retail banking, insurance and fund management.

So up to £6bn of annual EU cross-border revenues out of £26bn would be at risk over time of leaving London and flowing to financial institutions domiciled in the rest of the EU.

This is a loss the City would rather not incur. But it would be a lot less grave than the impact of a no-deal Brexit.