Financial services firms 'less confident as Brexit fears mount'

Confidence among Britain's financial services firms dropped again in the fourth quarter, making 2016 the "gloomiest" year for the sector since the 2008 financial crisis as Brexit fears and global uncertainty took their toll.
Banks, general insurers and finance houses were the most pessimistic, as sector profit growth ground to a halt and business volumes fell flat in the three months to December, according to the latest financial services survey by the Confederation of British Industry (CBI) and PWC.
Around 45% of firms were less optimistic about the overall business situation compared to the previous three months, while only 10% were more optimistic, giving a balance of minus 35%. That is compared to minus 13% in the three months to September.
It marks the fourth consecutive quarter of deteriorating sentiment and the longest period of declining confidence since the global market crash of 2008/09.
The survey of 103 companies found that the biggest challenges for financial sector firms were having to prepare for the impact of Brexit, as well as macroeconomic uncertainty and regulatory compliance.
CBI chief economist Rain Newton-Smith said: "Ruling out membership of the single market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU.
"Businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU."
The report comes as a number of banks, including JP Morgan and HSBC, confirmed that parts of their businesses would be moved from the City in response to Brexit and Prime Minister Theresa May's decision to rule out single market membership.
It puts passporting rights, which currently allow financial services to trade freely within the EU's single market, on the chopping block.
The prospective loss of passporting rights prompted the International Regulatory Strategy Group (IRSG) and global law firm Hogan Lovells to launch a report stressing the need for a new deal that allows similar levels of cross-border access for both EU and UK financial firms.
After Brexit, the UK would be defined as a "third county" in the eyes of EU regulators but the report warned that existing arrangements with third countries that reach "equivalency" standards lack key safeguards and are not a long-term solution for the industry.
It insists that the "cooperative relationship" between the EU and UK needs to be maintained, which means "avoiding the imposition of new barriers between the two markets when Brexit occurs."
Mark Hoban, former Treasury minister and chairman of the IRSG - which is co-sponsored by TheCityUK and the City of London Corporation - said: "The analysis is clear: a new UK-EU relationship based on existing third country regimes (TCRs) and equivalence is not a viable option for the whole industry.
"The TCRs are limited in coverage and uncertain in their availability, and too unpredictable. A bespoke solution with reasonable safeguards is the only way to prevent the fragmentation of financial markets and ensure continuity of service for firms and customers in the UK and across the EU."
A Treasury spokeswoman said: "As the UK exits the EU, the Government is determined that our country remains a great place to invest and do business.”
"We want to make sure that British companies have the maximum freedom to trade with and operate within European markets - and to let European businesses do the same in Britain.”
"Financial services is one of the areas where a bold and ambitious free trade agreement could be sought and we will continue talking to the sector about the kind of deal they want to see.”
"Our financial service sector makes a crucial contribution to our economy and we are determined that it continues as the hub for both Europe and the rest of the world."