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UK - China test ground for financial projects

10 Aug 2016

CBX

British and Chinese securities watchdogs are discussing an agreement that will pave the way for landmark financial services projects between the countries, sources say. The deal will help ease fears that Britain could be a less attractive partner for such deals after its vote to leave the EU.

Britain’s Financial Conduct Authority (FCA) and the China Securities Regulatory Commission (CSRC) were co-operating on a regulatory framework for a scheme for distributing fund products in each other’s jurisdiction and a proposed London-Shanghai link for trading shares, experts say.

Britain, home to the EU’s biggest finance sector, has been pushing in recent years to deepen its financial services ties with China, which has agreed to these and other cross border financial services schemes as part of the UK-China economic and Financial Dialogue programme.

Former UK chancellor George Osborne and Chinese vice-premier Ma Kai said at last September’s meeting of the programme in Beijing that they would explore the creation of a London-Shanghai equity link and mutual funds recognition scheme, but neither government have provided details.

There are, however, complications in the economic links between the two countries since the EU vote ended the premiership of Britain’s David Cameron, who along with Osborne had been keen to develop co-operation with Beijing.

The current Premier Minister Theresa May stepped in to delay a planned Chinese investment in a new British nuclear plant to review security concerns, a former colleague and a source pointed out.

Some market watchers had raised concerns about leaving the EU, which puts in doubt the UK’s future access to the trading bloc and its “passports” to provide financial services there, could scupper such projects by limiting their potential scope and appeal.

“So far none of the crossborder exchange initiatives have been derailed by the risk of Britain leaving the European economic area and the associated passporting rights,” said Frederic Ponzo, managing partner at financial services consultancy GreySpark Partners in London. “What is clear is that the CSRC and the FCA will not stop co-operating after the vote to leave the EU,” he added.

A second source claims that the FCA and CSRC were exploring a regulatory agreement similar conceptually to a memorandum of understanding inked by the CSRC and the Hong Kong Securities and Futures Commission before the launch of the Hong Kong –Shanghai stock trading link in 2014.

The Hong Kong-China memorandum created a framework for policing the scheme, including sharing trading data and co-ordinating on investigations, although it was not clear if a UK-China co-operation would be as far-reaching, the sources said.

Both said, however, that Britain and China did not expect to announce any major new financial services initiatives at 2016’s dialogue meeting, of which the date had not been set but was likely to be held in October or November in Britain, a third source said, while both countries analyse the implications of Brexit. 

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