City of London bosses have urged the UK government to tread carefully after it promised sweeping post-Brexit deregulation, arguing that the focus instead should be on creating new flexible rules to support growing areas of the economy.
Chancellor Rishi Sunak said last week that the City could expect something akin to a “Big Bang 2.0” — harking back to the Thatcherite deregulation of the financial services industry. The chancellor’s promise came after prime minister Boris Johnson asked 250 executives for ideas to cut regulatory and legislative burdens. The government is also considering a post-Brexit overhaul of UK labour markets.
The FT’s City Network — which brings together more than 50 of the City’s top figures in finance and policymaking — told the FT it was focusing on areas including tax and pensions reform, access to skilled workers, regulations to encourage growth of industries such as green finance, life sciences and fintech as well as support for changes to the UK’s listing regime.
But business chiefs say there is little need for wholesale deregulation in the UK. Anne Richards, chief executive of Fidelity International, said the government should focus on “re-regulation” — reshaping regulation in response to the post-pandemic environment — rather than deregulation, “with the aim of creating a financial universe fit for the 21st century”.
“The UK did a superb job of getting its voice heard on the regulatory debate in the EU,” said Miles Celic, chief executive of TheCityUK, which represents financial services companies. “As such, it’s not a surprise that the UK industry is broadly content with the regulation that we’ve just onshored — the UK was, after all, the main architect.”
The call for ideas by Mr Johnson was taken by many as a sign of thawing relations between business leaders and Downing Street. One senior banking executive said it had been great to hear such “upbeat and gung-ho” talk from ministers after feeling excluded from policymaking because of the opposition of many in the City to Brexit.
The prime minister has convened a new business council with some of the UK's largest companies that will meet quarterly, starting today.
Kwasi Kwarteng, who was appointed business secretary this month, has promised to work closely with businesses. “I definitely sense a change in tone. We are seeing better traction,” said the banker. But he added: “What does it mean in practice? Instead of looking backwards, we need to look forwards.”
Mastercard vice-chair Ann Cairns has found the government “very keen to show they are truly backing business post-Brexit”, saying that a financial sector “engineered to give us the flexibility to make good business decisions, would be ideal”.
Mr Celic also sees the need to “fine tune” rather than change regulations, pointing to the need for a “clear vision” between government, regulators and businesses.
Even before the UK left the EU single market, ministers had started looking again at some City regulations, with reviews into Solvency II regulations that govern insurance, listing rules and the fintech sector.
Many in the City agree these are sensible areas of focus. June Felix, chief executive of IG Group, the spread betting company, said it was vital that the UK reinforced its leadership in fintech “through co-ordinated policies and regulations”.
But Ms Felix worried about how to keep talented workers needed for such fast-growth tech sectors.
“I am aware that there has been some flight of talent to other markets . . . we need to realise that the access to capital and huge markets has given [the US] big advantages.”
Ms Cairns said it must be made “easy for the best and brightest to come to live and work in the UK from all over the world”, adding: “The UK, and not just London, should be a great place to launch start-ups. The government should support this through investment and good competition rules.”
Such ambitions could clash with post-Brexit restrictions on freedom of movement. Business chiefs see an irony in the government asking how best to cut red tape when Brexit has meant folders of new paperwork for cross-border trade and services.
Mitigating the effects of Brexit — and securing a financial services equivalence deal — was also high on the list of priorities.
“We are protected in the short term by the concentration of talent, services, law, language . . . but there are real longer term risks if we do not [re-establish trust and dialogue with the EU],” said former BT and KPMG chair Mike Rake.
The City Network identified other areas of future policymaking, including green finance and technology. Ms Richards pointed to climate-related financial disclosures and engagement with shareholders and asset owners on climate change as examples of where progress could be made.
She also called for pensions reform, saying that “with the right regulation in place, and within our financial ecosystem, we could build a simpler, better pension system for all”.
Mr Celic said the UK’s tax regime could also be made more competitive. “The UK does not have a particularly attractive tax regime.”
Elizabeth Corley, chair of the Impact Investing Institute, flagged the review of the UK’s listing regime by Jonathan Hill — which will look at how to make London more attractive to fast growing start-ups.
“It will be a delicate balancing act to maintain the competitive strengths that flow from good governance and decent business practice while making sure that the environment for raising enterprise capital is attractive and encourages innovation in future growth sectors,” said Dame Elizabeth.
James Bardrick, UK head of Citi, framed the UK’s future in a global context, arguing for greater alignment rather than divergence. The UK and the EU should look at their wider role in the global economy, he said, “to ensure that they are creating an operating environment that is open to both local and international trade and services business”.