A number of commentators have in recent days expressed a preference for the UK to adopt the "Norway model", i.e. membership of the European Economic Area.
There are a number of issues the City and wider UK financial services industry must consider when deciding whether EEA membership is the model politicians should favour. There are pros and cons.
A key advantage of EEA membership would be continued access for UK firms to the single market passports which allow banks, insurers, dealers, asset managers and others to conduct business across EEA borders without the need to obtain local licences or to establish a local subsidiary. Many firms view such access as the key factor. No other model, including Switzerland, WTO etc., currently offers this.
But as an EEA member, with very limited exceptions, the UK would be bound to adopt future EU financial services and markets laws agreed between EU institutions in which it would have no direct representation, and no vote. City institutions would be able to lobby, but only as outsiders.
Taking just five examples, it is possible that such laws could in the future: (a) mandate particular pay structures for a larger number of financial services professionals, not just bankers; (b) further restrict the circumstances in which the short selling of securities is permitted; (c) liberalise current UK restrictions on the payment of trail commission to financial advisors contrary to current UK policy; (d) extend the existing regulatory regime for private equity funds, hedge funds and other alternative fund managers; and/or (e) restrict the ability of financial institutions elsewhere in the world to do business in or through London. Depending on perspective, some of these may be thought 'good' and some 'bad' – but the UK would not be able to have any meaningful influence over the outcome.
EEA membership would significantly restrict the UK's ability to develop a more favourable regulatory regime to attract business from firms whose focus is either entirely domestic, or global (ex-Europe).
Notwithstanding the possibility of some access to EU markets on the basis of deemed equivalence (about which there has been much commentary), the challenges for UK firms of being out of the single market are not to be underestimated. But continued access to the single market through EEA membership comes at a price. If the Article 50 notice is served, and if an entirely bespoke deal is off the table, the City and UK will have to face up to this dilemma.