UK-US Financial Cooperation After Brexit


EVENT TRANSCRIPT: UK-US Financial Cooperation After Brexit

DATE:  15:00 – 16:00, 13th September, 2018

VENUE: Committee Room 18, House of Commons, London, SW1A 0AA United Kingdom

SPEAKER: Dr. Heath Tarbert, US Assistant Secretary for International Markets and Investment Policy

EVENT CHAIR: Paul Stuart Scully, Member of Parliament for Sutton, Cheam & Worcester Park.



PAUL SCULLY: Can I just welcome you all and say thank you very much for coming? It’s the last day of this very short session of the parliament we have before we all disappear again for our conference season. So, there are not too many members around. But [inaudible] they would, if they were here; they would be incredibly interested in what we are going to be discussing this afternoon. So can I thank Alan and The Henry Jackson Society for putting this event [inaudible]. This is an off the record session. So if the Assistant Secretary could respect that please when considering how you take it out of this room. Can I just introduce Dr Tarbert, the assistant secretary of the treasury for International Markets? You have been over here for a couple of days now talking about financial regulations with various parts of the treasury. You are obviously going to be incredibly positive for us moving forward. So it’s good that we are starting to have the discussions that we are able to have at this stage of the Brexit process because clearly we can’t be negotiating trade deals whilst we are still member of the EU but exploratory talks are very much to be welcome. We really do have a great opportunity in this and people have been describing this as…I think Gavin Williamson was just talking about how unparalleled this opportunity is-as we leave the EU- to reengage with some markets that we haven’t necessarily been at full speed with.  America is frankly one of the…You know we want to look globally, we want to lift that head as we leave and not internalise and be little islanders. Completely the opposite. I am actually the Prime Minister’s trade envoy for Thailand, Brunei and Burma and just one snippet [inaudible] that global outlook is just achieved. Small Mozambique- we started the exports with Mozambique. Last year Our exports to Mozambique were exactly zero and now within a year its 4.6 billion and that stands from some relatively simple stuff looking around political instability [inaudible] and being able to give companies the confidence to work in those sort of markets. Now clearly what we are talking now is not that sort of political instability. We have got a very mature relationship with the US which as I say we are looking to build on. So, Dr Tarbert has…his work has got a diverse portfolio of issues in the treasury’s office of international affairs, focussing on investment security, supporting the work of the committee on foreign investment in the US, to promote US investments whilst protecting national security. Your policy focus includes monitoring investments in infrastructure and energy. In addition to serving as the Assistant Secretary, Dr Tarbert serves as the acting US executive director of the World Bank Group of 2017-2018. He was most recently the part of the international law firm of Alan & Overy where he is a leader at global regulatory practice. He previously served in all the three branches of the US government, including special Counsel to the Senate’s banking committee, and associate counsel to President George W Bush and as a law [inaudible] to Chief Judge Douglas Ginsberg of the US Court of Appeals of the DC Circuit and Justice Thomas of the US Supreme Court. But his experience is not just US. He studied here- in Oxford a while back and has a DPhil in Comparative Law from Oxford and is a qualified solicitor in England and Wales. So we are not going to be asking him for legal advice (laughs)

DR HEATH TARBERT: I won’t be able to give it! (laughs)

PAUL SCULLY: [inaudible] but without further ado, lets [inaudible]

DR HEATH TARBERT: Thank you very much for the kind introduction, honoured to be here. I might just stand [inaudible] Is that alright?

PAUL SCULLY: Yeah – please!

DR HEATH TARBERT: Okay! So, it is great to be here with the Henry Jackson Society. Henry ‘Scoop’ Jackson- as he was called- was obviously an American Senator – for those of you who do not know. That is very emblematic of the special relation between the US and the UK. So it’s quite fitting that I come here today. He worked across the aisle. So obviously he was a democrat but he was respected by Republicans and Democrats and others and really worked on issues that were of global importance and was able to get a bipartisan majority- so it’s great to be here today. America has had a long special relationship with the UK. That relationship has obviously been of a military nature, of a defence nature; it’s obviously been of a cultural nature- we like [inaudible] and some of the things that you do. First and foremost, it’s been an economic relationship. And so we proudly stand by, and not just the US treasury but I think I can speak for the US government on the whole when we say we proudly stand by the UK as you move forward in implementing Brexit which was an outcome of a popular vote. Let’s talk about the economic relationship between the US and the UK. The UK is the single largest foreign direct investor in the US, it’s about half a trillion US dollars, which is about 300 plus billion pounds in just foreign direct investment- I am not talking about indirect investment. I am talking about UK companies purchasing US companies or having a physical presence on the ground. The same is also true the other way around- The US is the single largest investor in the UK, the US has a foreign direct investment stock with about 600 billion dollars in the British market- so that translates into actual jobs which constituents care about. About 1.1 million Americans work for British firms and about 1,4 million Britons are employed by US firms. So that’s pretty important at the end of the day- that’s a very tight relationship. Not only that when you actually look at the quality of these jobs- US jobs supported by British firms and vice versa- financial services, information technology, even manufacturing. So these are of high positions and most of them have high wages. So as a result, Brexit is actually of great importance to the United States. Ultimately- and I want to make this clear as some people have weighed in- the deal has to be between the UK and the EU. The deal has to be between you and your counterparts in the EU to [inaudible] around the final details of the agreement and your future relationship. But that said it’s inevitable that other countries such as the US will feel the effects of Brexit as there are many things which are being discussed now in the EU about third countries and I am going to talk a little more about that- regulatory passporting, equivalents and things like that- which will have the effect on not only changing UK relationship in a potential meaningful way but will actually change the actual existing relationship of the US and Japan and other nations vis-à-vis the EU and obviously  the UK as well. So, from our perspective we want the smoothest possible transition for all parties as UK embarks on its exit. So our cabinet minister Secretary of the Treasury Steven Menichen is very supportive of the UK and wants to see a successful transition. Obviously we can talk about this; particularly now prior to March 29th– about the concerns generally about how Brexit will unfold and how to address those concerns. But I think it makes sense to pause and I think you very well is how Brexit present a potential opportunity. Certainly in the long run- but I think also in the medium and short term. So we see Brexit as a moment for continued collaboration which can strengthen the long standing special relationship. In to that end- that’s semi-public I guess- yesterday we had our very first meeting of the US-UK financial regulatory working group. So this is a body that is chaired by both the US treasury and Her Majesty’s treasury with representatives from all of your financial regulators as well as ours. We of course discussed the implications of the UK’s exit from the EU-particularly on issues such as financial stability, [inaudible] continuity planning – all that stuff. But we also spent ample time looking beyond March 29- the post Brexit future priorities for our two countries and ways we might collaborate deeper on financial regulatory issues to help strengthen and continue what I think is the strongest, most vibrant cross border financial market in the world- the Transatlantic financial market between London and New York. In addition to that we also had what is called the UK US trade investment working group where we are having discussions about a potential free trade agreement and we have envisioned a financial services chapter potentially being a part of that agreement. So that’s the sort of thing that we are doing – laying the groundwork for [inaudible]. Obviously what we are able to do will depend upon your exit terms from the EU. But I think it’s worth mentioning that there are issues that we should work on as part of the exit – but that there is also a potential opportunity here. These dialogues that we have been having have been very productive and important and we look forward to continuing that. From a US standpoint, looking at Brexit I guess we have two overriding strategic objectives. The first is ensuring that there are no systemic effects arising from Brexit, particularly a hard Brexit and that we don’t have any kind of financial instability whether that is instability here, in the region but also financial instability that grows abroad. Interestingly, and I have mentioned this before, we want to continue to have a thriving cross border transatlantic financial services industry. So those are the two big goals from the US treasury that we would like to see. March 29th is quickly approaching and so the question is how do we get there- at least from our perspective. and I think we have sort of three goals – three main goals- avoiding the cliff edge, contract continuity and also continuing market access. So on the cliff edge, I think our number one priority is minimising economic and financial disruptions that would occur if there is a so called hard Brexit. S if you look back at the Brexit vote, the UK economy has underperformed as has the European economy. I think if we have a hard Brexit, that could exacerbate the issue. I also think there are associated [inaudible] risks with contract continuity that I am going to talk about. But I think several things that we would need to monitor particularly in a hard Brexit situation would be trade- the UK would immediately move to a trade model based on a WTO rules which could impair cross border commercial activity. Financial regulation in a hard Brexit situation- there might be legal uncertainty with respect to counter parties and regulatory regimes and then finally London. London dwarfs all 27 countries in terms of their financial centres and really, London is a global financial centre. There is simply nothing like it on the continent. The only thing that is similar to that would be New York, and perhaps Hong Kong. So one question is if there is a hard Brexit would the European authorities be able to perform all of these functions that London performs         at March 29th – including regulation of trading platforms, enforcement of market abuse rules, supervision of clearing houses. Again, it’s unclear when we talk about London- and all of you know this much better than me- we are talking about 37 percent of the world wide OTC foreign exchange derivatives. We are talking something in the neighbourhood of 40% interest rate swaps. So from a US perspective as well as sort of the G7, I think we all need to work together to ensure that the EU and the UK put a transition period in place and avoid a hard Brexit. IN that regard, I think the better view would be that sooner is better than later because businesses are staring to make decisions as we know particularly with respect to things like clear derivatives. Those decisions are going to be made in the next couple of months. This takes me to the number 2 goal which is ensuring contract continuity. I can say this both your country and my country having studied British legal history contract has been at the core of commerce. The stability of contract is the backbone of our international financial system. So it should be of great importance to everyone in this room- contract continuity. When we talk about contracts, we are talking about a hundred billion of insurance liabilities and potentially in something in the neighbourhood of a hundred and twenty-five trillion in notional amount derivative contracts in both clear and unclear derivatives combined. So, that’s quite a big number. I think we generally agree with some of the things said by the government here that some kind of public sector solution- a public sector role would be important in ensuring contract continuity. Let me give you some examples of this. So, right now EU rules require derivatives be centrally cleared but only at recognised CCPs. There is no indication at this point that some of your clearing houses will be recognised CCPs on Brexit day. So that is something that I think should be addressed with clarity. We would encourage the European Union to work with you to address that clearly that they will indeed recognise your clearing houses on Day 1. Third point, continuing market access- We would like to see -all things being equal- preventing an immediate loss of passporting. I think one of the things that your government is doing and that there is a bill which I believe is pending – or statutory instrument that deals with a temporary permissions regime. So essentially on Day 1, the UK will recognise the EU Passporting rights to come into the UK but the EU has not done the same- there is no indication at this point that they would do the same but we would obviously encourage them to do the same. So UK firms as well as US headquartered companies that are in Great Britain and useLondon as their launch point into the UK would have access to continually serving European passports. I think it’s an important point because I think people view passporting rights as you’re doing a benefit to financial services firm. But I would say you that ultimately are doing benefit to customers. There are many European customers – institutional investors and in some cases retail investors- who want to have the choice of financial firms they would like to be investing with a UK company or UK financial manager. If some of these passporting rules and equivalents that I am going to talk about next are eliminated, they would not have that choice and opportunity. So I think it’s not just about reigning UK companies’ right but it is also about European citizens also having the choice that they have now. Closely related- and I don’t want to get too technical on the financial services- but one of the things that is similar to passporting is the idea of equivalents. So the UK has not had a deal with equivalents in financial regulations because you have been a part of the EU. So basically equivalence means if you have got similar rules to us we will recognise yours, you will recognise ours; your firms will be allowed to participate and of course passporting flows from that. When you become a third country, there needs to be an equivalence determination and also needs to be recognition of your institutions. The US position has always been – “We like equivalence, its fine”. But equivalence should not be a rule by rule comparison. Equivalence really means that there is substantially similar outcome – “Is this regulatory regime designed for relatively the same goals as your regulatory regime and is it effective essentially in doing that?” That is very different from going line by line and comparing text – again similarity doesn’t mean it needs to be identical. So our view would be that on Day 1, particularly with the withdrawal act that you passed, if you are importing all the EU laws, it would seem to us very reasonable that European Union recognises that regime as equivalent. That said, even when jurisdiction redeem the equivalent, I can tell you from the US perspective, market access has not necessarily been granted. We have seen cases in our own country because again as a third party where we had credit rating agencies was basically…the credit rating agencies were obviously the standard [inaudible] where equivalency was founded in 2012, yet effectively those companies have been forced to establish a location. So there is the other situation where they would make the equivalence determination but recognise individual institutions and so there is a lot of that going on. I think US position continues to be that when we have dialogues with European Community and when we have dialogues with the UK once you guys are out…I think many of you hold a similar view that equivalence decisions between us should be outcomes based as opposed to being the same. I will end with that. So- again-the two big picture concerns of the US and the three goals that we would like to see at least in the short term going up to March. At the end of the day it is really about continuing to keep this thriving cross border financial services- the transatlantic market that we have. But I would also say there would be opportunity for even greater collaboration depending upon what you guys eventually do with respect to the EU. So that gives us great excitement. With that, I will end and take your questions.

(Audience Claps)        

PAUL SCULLY: Thanks Heath, that was really excellent. Policy of updating… obviously clearly looking after the interest of the US and the UK as well, and as you said the customer- to give them the choice. So now it’s natural that we look forward to see and try prevent any issues rather than stuff that the media feeds off. We have got to get there and live in the real world and tackle these things now. So it’s great that this is going on. So, take some questions from the audience


QUESTION: [inaudible] When it comes to coordinating sanctions policy going forward [inaudible] sanctioning Russian debt. I was doing some work on this with clients in the financial sector [inaudible] and one of the questions that came up was the apparent lack of coordination in timing and potential setting off of competition between bankers here and the US who want to [inaudible] changing those markets. Are there any larger conversations going on around sanctions policy and other policies increasingly changing these markets that are being driven by US and UK political developments. How we can coordinate better with each other to make sure we are not inadvertently competing with one another?


DR HEATH TARBERT: Okay, it’s a great question and a set of questions. I can honestly say that there is a different division that deals with sanctions under the Treasury Department so it does not fall under my domain. But what I will say is that sanctions are an international economic tool that are meant to achieve political goals often or anti-terror, depending on the nature of the sanctions. The more coordinated the sanctions are, the more powerful they are. So I would imagine that those sorts of coordination if they are not going on- I suspect they are, but it can always be improved upon- so the traditional view has always been economic sanctions are most powerful when they are joined with our closest ally. There is no ally that is closer than the UK.


QUESTION: Thank you very much. My question is based on experience working for but not in the European Commission albeit on security or border control or tax work, not financial market. I have been struck with quite strong threat in [inaudible] European commission, obviously not all, frankly Anti-Americanism. Probably down to the fact that they are not very comfortable[inaudible] started to change with defence and security issues, bureaucracy [inaudible]. Extrapolating that into the broader financial sector, how are you getting on…the US with the European Commission and European Central Bank to the European approach to passporting and equivalence for US institutions. Maybe convergence or divergence on that with some [inaudible] for the UK?

DR HEATH TARBERT: Before I address [inaudible] financial services, I would say that I also oversee committee on foreign investment which is essentially a national security function. In that respect I think our interests are very much aligned, not only with the UK but also with the EU. We have been working very constructively with them as they start to think about an EU investment security regime…

QUESTION: It’s the same challenges for all of us.

DR HEATH TARBERT: It’s the same challenges for all of us. Not to diverge too much into that area but if you think about it lets suppose there is a specific piece of technology- very advanced semi-conductor [inaudible] whatever…you name it – artificial intelligence and let’s suppose that there are certain strategic competitors that we think if they got their hands on this technology it would create a military offset that we were not comfortable with. It does not matter whether they get that from Silicon Valley, or they get it from the Netherlands or whether they get it from Japan, the very fact that they are getting it is an issue. I think if we are going to have collective security militarily, we also need to have some kind of collective investment security as well. To date, I found those discussions really helpful and we are very much working toe to toe and the new legislation we got on that subject just a few weeks ago allows us to share information with allies and to work on cases together. So that’s a side on security where I think we have a constructive relationship with the EU. So I haven’t seen any evidence of anti-Americanism. On financial regulation we have a very constructive dialogue. For 15 years, we have had the US-EU working group- it’s now a regulatory forum- where we have discussed all these issues and they have concerns about some of the stuff we are doing as well where we can discuss these issues. I would say our discussions have even very constructive now and many of the things. Everything that I have told you and conveyed to the HM treasury and the European Commission as well. I understand the point of view…I analogise because I think at this hour they are like why are the Europeans doing this…why are they doing that. We sort of say “Look at it this way. If the State of New York were to leave the US, and NYC were to go with it, we would be having similar concerns. We would have a lot of questions; we would think through about what do we do.” So I sort of explain it that way. We understand where you are coming from but again as I have laid out in my remarks I think there are certain things we would very much encourage to happen.



QUESTION: It’s kind of a semi- follow up to that question. What are the things you would encourage them to happen? Number two: You outlined the objectives and its interesting how someone from the outside essentially look at this process which of course we are [inaudible]. What do you think are the potential pitfalls in achieving those objectives, taking a neutral look from the outside? I am curious if you tie those two together.


DR HEATH TARBERT:  Yeah, I think ultimately the terms of things that you [inaudible]. Our view is I think if there are externalities if you will that are called by both sides pursuing a path or at least one side pursuing a path potentially that creates turmoil. We would seek to encourage that path not to be taken so there is a concern that I think anytime you enter into negotiations you create leverage and so from a government standpoint, there is an incentive. Certainly, on either or both sides as you negotiate Brexit, you sort of drag things out the last minute you can seal the deal. But obviously the private sector and markets do not appreciate that as much. Markets thrive on certainty particularly of government policies and law. So I think there is that asymmetry of what might be good from a government standpoint and what might be good from market stability and avoiding market fragmentation. So that is something to think about. I think that is the case unless market participants talk to their governments and say “we really have concerns here.” We are obviously communicating it the best we can but I think it’s far more powerful to come to the citizenry who they represent

QUESTION: I was fascinated by your analogy of New York State leaving the union. Does that mean that Washington already regards EU as single entity comparable to United States?

DR HEATH TARBERT: I think that’s a great question. But analogies are always used as analogies but they are not deductively logical. I think it’s just a way of framing it and thinking about it. The EU is its own particular set of relationships. I have tried to ensure that I kind of understand it but think to penetrate it adequately and to compare with the US system – I think that is maybe beyond my capabilities at this time. So, I am not sure how we characterise it- and we really don’t. We let the European Union and its member states to sort of characterise itself. I do think what is going on its interesting obviously the UK leaving the EU- so there is a set of questions regarding that. This started prior to Brexit but Brexit has sort of encouraged it flourish is a separate dialogue or tension if you will of powers going to Brussels or Frankfurt and those remaining with the member states. So we see this in financial regulation- this tension between member states and the EU bodies sort of working itself out. My job is centrally just to sort of understand how are the Europeans describing themselves and their relationship both at the commission level but also at the member state level. Its interesting to see variations.

QUESTION: Picking up on your point about contract continuity, and in the derivative sector specifically. I mean the figure you quoted of 125 million dollars …I mean this is eye watering sums of money. And for the last couple of years, the sector has been quite low [inaudible] in saying that this problem is too large for the sector itself and needs regulatory and public sector support. It’s very heartening that you made that point that there needs to be a public sector role here. So my question is that in the channels that are open where these discussions are taking place- Trade Investment Working Group, the Financial Regulation Working Group- do you feel that the private sector is plugged into those discussions. [inaudible] You think engagements are taking place?


DR HEATH TARBERT: I would always encourage further engagement with the private sector. I mean I find it beneficial…it’s one thing to talk to your government counterparts and quite another to hear from the private sector firms in your jurisdiction as well as [inaudible] to get a sense of [inaudible] and also to hear from public sector pension funds and all sorts of various groups about what is effecting them and what their concerns are because I find that although we try to do to the best of our ability, we are not on the front lines of many of these issues. A company has thought deeply and in some cases it has caused them restless night for them on some of these issues. They can convey concerns and particular technical and operational issues with much greater specificity. So I would always encourage that. It was just announced yesterday when we held the first UK-US Financial Regulatory Dialogue, the Industry Association said, “We are going to hold our own Regulatory Dialogue to mirror yours”. So I think things like that are very constructive. So I would certainly encourage you to make your views known.

PAUL SCULLY: It’s the useful thing actually about this time that we have got now between having the Referendum and Leaving, the transition and implementation period- it gives us that extra opportunity to have that meaningful dialogue with as you say government to government but also within the private sector, the people who are actually going to be benefitting from this and are going to be facing unintended consequences if we don’t get things right.


QUESTION:  Regarding Galileo, as we are out of the EU, the security issue will be a problem [inaudible] as I understand they won’t [inaudible] give us the key. As there is a special relationship with the US, is there any possibility of cooperation in that respect as far as security is concerned?

DR HEATH TARBERT: It’s a good question…I think we would have to consider that on the merits.

(Audience laughs)

DR HEATH TARBERT: I am sorry to give you a government answer but as far as [inaudible]. That’s the only thing I could say at this point. Just to be clear, the special relationship, is very special – to put it that way.

(Audience laughs)

DR HEATH TARBERT: I can tell you that among your sort of your MI5 and MI6 and our intelligence community, there is very close coordination. I will leave it at that.

QUESTION: Regarding UK’s aspirations as to the euro becoming the global trading currency, do you believe that that is achievable and what would the US take on that be given that that would be potentially deposing the dollar?

DR HEATH TARBERT: We don’t have a position on that…I mean if the euro becomes a worldwide reserve currency…it is what it is. We would let the markets decide that question for you. That is a centrally…

PAUL SCULLY: But would you have a concern if that was the Chinese currency? Will that be a source of concern for you – just on the strategic level as much on the economic level?

DR HEATH TARBERT: I think it would depend on the circumstances. I think it would depend on the circumstances…

PAUL SCULLY: I mean this current regime in China and its expansionist goals…

DR HEATH TARBERT: Let me put it to you this way… I think we would have a lot of meetings to discuss that…

(Audience laughs)

DR HEATH TARBERT: But that said we have obviously been critical of Chinese currency policy in the past. So, I think in one sense that could have…[inaudible]. That is why I don’t think its necessarily black and white. If you have a reserve currency, it’s a lot more difficult to be potentially manipulated.

QUESTION: Coming back to your points about businesses wanting certainty, in some ways that acts as counter positioning or awkwardness between governments enjoining and the last minute stuff and what their desire is. But I don’t think it’s actually entirely true that businesses want certainty; there are many business people of more of an entrepreneurial nature who are welcoming Brexit and see this change as – like you said for the number of points your raise- possessing great opportunity Yet, the finance sector seems to want this certainty- I think almost more than any other sector. Does it not concern you that this rigidity within the finance sector which is an inhibitor to true innovation and that must be worrying at this time because of things like Fintech potentially be major disrupters.

DR HEATH TARBERT: Thank you…thank you. So, when I say that sort of businesses would like certainty, I am talking with respect to those things that I mentioned- so, contract continuity, not necessarily certain regulations…but your point is a good one. I think there are many businesses including the financial sector itself …so, I think the financial sector itself would like some contract continuity- so things that they have already agreed to in the past. They don’t necessarily want that unravelled. But the possibility of future changes, and to particularly to get into things like blockchain and other nature, I think there they would not want rigidity to continue. They would not necessarily want certainty particularly if that certainty was to close doors down the line. So it is more complex; I was not trying to simplify it but I was simply trying to say that with respect to current legal complications, I do think that overall businesses prefer certainty but it’s a good point…and of course there are traders who would love uncertainty, who make their money with market swings or whatever. But I think I am talking generally about the financial sector and again the… however many millions of people that are employed by banks, savings associations and all those sorts of groups.


PAUL SCULLY: I mean as you say…talk about China’s [inaudible] almost a definition of profit you need risk, buts it’s how you manage that risk. So that managing that risk then provides the certainty. If you get what I mean, rather than just a…having a very blank…


DR HEATH TARBERT: To that point, the instruments I am talking about are the very instruments used to manage risk- insurance and derivate. I mean that is why I think it’s important there be certainty there.


QUESTION: Before coming to the UK, President Trump was quite critical of the European Union and he encouraged the Prime Minister to be more tough with the European Union. Would you share those sentiments?


DR HEATH TARBERT:  So, this is a very simple answer for me. As an assistant secretary, I would not presume to advice the President or The Prime Minster on how they should behave at that level of negotiations.

(Audience Laughs)

DR HEATH TARBERT:  At such a time that I were to potentially be in a higher level, then I would do it. But I think a lot of this is… and then of course you saw that there was a very positive meeting with Juncker after that with the president. So, at that level of international politics, I don’t pretend to be an expert.

Paul Scully: I have got one more follow up. Its interesting actually, we referenced the President, obviously he is an expert on the kind of brinkmanship that you have somewhat [inaudible]. But let’s fast forward to April of next year. Let’s assume that there is Brexit of some sort which [inaudible] to the Europeans or not. But either way it has happened. You have also you going to some [inaudible] like to see obviously happening. What about the more sort of forward thinking [inaudible]). Let’s look at the UK-US relationship post-Brexit, what is it-in your field of expertise- that you can see potentially as an opportunity for the two countries working together?

Dr Heath Tarbert: I think this gentleman…he…he mentioned one of them I think which is the idea…If you look at the US and the UK, one of the things that I think we do better than anywhere else in the world is innovate. So when you look at technology, whether it be fintech or technology more generally…but in our area fintech, blockchain, ledger, payment systems- I think that is a potential area where there could be closer ties and collaboration. I think when you look thirty years down the road, it could very well be that financial institutions of the future are fintech firms and vice versa. So I would say that is something that is up for potential interest.

Paul Scully: Any other areas of potential [inaudible]?

Dr Heath Tarbert: I think at this point, we are…are…financial…just financial banking in general, insurance. I think a lot of it would depend…I think that’s an area where there is in many ways white space. There is not a lot of regulations…the EU. Its white space right now and it’s an area where clearly the UK and US are somewhat unique. I think other areas would become evident when we see what the deal is that you all strike with the EU and I think from that point we can go on and determine potential possibilities. So, I think the first order of business could be to ensure that there is at least not too much market fragmentation. Based on the terms on which you agree, then I think the opportunities will sort of evidence themselves.

Paul Scully: We obviously had a cabinet this morning based on No- Deal Brexit and some of the papers that have come out of that. You’re clearly saying you are looking to reduce uncertainty [inaudible]. Is there is anything that you specifically that you want to see [inaudible] for no deal planning?

Dr Heath Tarbert: I think for no deal planning, you have to ask yourself…the general idea is to…in a no deal situation, provide as much continuity as possible. So a cliff edge at least leads to some kind of soft landing. Otherwise, people holding a net may go off the cliff. One of the ways you can do that is look at all other …sort of the agreements that are currently with the EU with other countries- including the United States and think about when the UK is gone, should there be similar agreements with the UK bilaterally. So that is something that I think would be the sort of thing you would want to think about. Again, I think the goal has to be as soft a landing as possible in a hard Brexit situation and ensuring as much continuity as you can

Paul Scully: One of my big Leave colleagues, Andrea Jenkyns, she had a child on Brexit Day – Referendum Day- and she calls it ‘Clifford’

(everyone laughs)

Paul Scully: She ensures me [inaudible] and its middle name is not ‘edge’.

(everyone laughs)

Paul Scully: Are there any other questions?

Question: So the opportunity on Brexit is on the Brexit side and the Europeans are also sniffing [inaudible] the French and Germans trying to position Paris and Frankfurt as rival financial centres. You say it’s in US interest for London to maintain its position as the dominant centre of Europe, or would you support others in their projects [inaudible]?

Dr Heath Tarbert: I think as to that, where the business moves, we would prefer as little fragmentation as possible. Where the business goes is where the business goes…I mean obviously what’s going on now in London…the systems, the contracts, the use of English Law, New York Law…all of those things that we know and are stable…the English legal system ..we trust. I think it’s really the decision of the business and we would let the markets decide where they go. I think blatant behaviour to restrict things and to move things off shore, particularly from an American perspective- where one of the things that has come up is ‘asset delegation’ where they are essentially going to take it away and say “If you are selling products to [inaudible] citizens, even if you are managing money- let’s say the fund is set up to manage…s to invest in oil reserve in West United States, you can’t have the fund in the United States doing that even though that is where the expertise lies. It needs to be in X …whatever European country it is. Something like that I think we would take issue with it.

Question: Thank you for your interesting expose. I don’t have a background in finance but I do have a background in going forward.

Dr Heath Tarbert: I wish I had that background, by the way…

Question: What are the unknown unknowns that you would sit down let say the first of May next year-and say “Why the hell didn’t we think of that?”- from your point of you?

Dr Heath Tarbert: Its precisely the right question to ask, but by the way you have asked it, I couldn’t possibly answer it.

(everyone laughs)

Dr Heath Tarbert: [inaudible] as a logical matter,[inaudible]

Dr Heath Tarbert: We are trying to think of all of the known unknowns that we can in that situation. But as you…

Question: But if you were- I am really going to come at you- one area that is really really troubling you…of all the things that you have mentioned?

Dr Heath Tarbert: I think contract continuity is the point. I said a 125 trillion in notional derivatives…so that is notional, we don’t know the netting. I mean we are trying to figure these things out. But when you are dealing with numbers of that magnitude and when there is a question as to whether these contracts can actually be performed, that to me seems like a pretty big issue.

Paul Scully: Fantastic! Maybe one last question? Are there any questions at all? No?

Heath, can I just thank you. Thank you so much. It’s been really fascinating and upbeat viewpoint on something which is – let’s face it- uncertain. And we have to work together to make sure we can get through this process as smoothly as we can so we can see the benefits and really build on the ‘special- special’ relationship. This is a decision we have taken not for the next few years but for decades to come and there is plenty we are going to do together [inaudible] the talks we are having now.


Dr Heath Tarbert: Thank You! And we wish you the best.

Paul Scully: And thank you Alan, thank you very much



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