The UK government has unveiled a major financial regulatory overhaul, in what is seen as a bid to cement the status of the country that has been rocked by Brexit.
The UK’s departure from the EU has created barriers to financial business with the continent and spurred competition from Amsterdam, Paris and Frankfurt. The Dutch city has overtaken London to become Europe’s premier equity trading hub, although the UK capital remains the largest financial services hub overall.
Finance Minister Jeremy Hunt said the government was using ‘Brexit freedoms’ to make Britain more competitive, and the reforms would make the UK ‘one of the most open financial services centers , dynamic and competitive in the world”.
But critics say the changes will do little to ease the pain of Brexit and could reintroduce the kind of risk that led to the 2008 global financial crisis. Prime Minister Rishi Sunak insisted the regulations would remain ” robust”.
The government “Edinburgh Reforms”named after the Scottish capital where Hunt unveiled the package of more than 30 measures, includes:
- Lift the cap on banker bonuses
- Relaxation of capital requirements for small lenders
- A review of the UK’s senior executive regime, holding bankers accountable for their decisions
- Easing of ringfencing rules aimed at separating investment banking from retail operations
- A plan to repeal and reform EU rules dating back to Britain’s accession and ‘build a smarter regulatory framework for the UK’
- Regulators will be forced to consider the UK’s global competitiveness when drafting the rules
Analysts say the financial sector will welcome the new measures while downplaying their importance. Some point out that the UK has little room to diverge radically from international standards.
“Travel direction will certainly be welcome,” said Jonathan Herbst, global head of financial services regulation at law firm Norton Rose Fulbright.
But, he added: “There is no sense of returning to a world before the financial crisis. Much of the UK regulatory regime reflects either international commitments or policy developed over many years to reflect the lessons of experience”.
Other critics say several of the reforms have nothing to do with Europe and will do little to reverse the damage caused by Brexit.
Some point out that the UK no longer has any influence on EU rule-making now that it is outside the bloc – and that the departure of the EU single market has affected financial services in the EU. UK just as much as other parts of the economy.
Since Brexit, UK financial services have lost direct access to European markets and so-called passporting rights, which allowed major global banks to serve the EU from Britain.
Around 7,000 financial services workers and £1.3 trillion (€1.5 trillion) in assets crossed the Channel to the continent.
The EU is updating its own financial rules to reduce remaining reliance on London and is ahead in areas such as crypto-assets.
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown, said London’s financial center had been severely hampered since Brexit. “Unfortunately the allure just isn’t there, with many of the UK’s brightest companies being taken over by overseas investors, and London losing its status as a major shareholder,” she said. declared.
But the pro-Brexit Institute of Economic Affairs (IEA) welcomed the measures, saying the EU was considering similar measures in some areas.
“Financial services is a sector in which the UK has a substantial comparative advantage. Brexit offers the opportunity to take over from the EU and build on these strengths,” commented IEA economist Julian Jessop.