UK chancellor Rishi Sunak harks back to the City deregulation of 1986 as he considers a post-Brexit shake-up to help London’s financial district compete. But his talk of Big Bang 2.0 lacks traction with City bosses. As the main architect of the EU rules, the UK industry appears largely content with them.
It may make sense for the City to talk down the chances of radical changes. So far, the EU has granted equivalence — a recognition that rules are closely enough aligned to grant market access — in only two areas and both are temporary. The EU’s desire to boost its own financial services industry is a factor in its reluctance to open its markets. But continentals also fear the UK will let deregulation rip. Political posturing about Singapore-on-Thames fosters those fears.
Yet the benefits of staying aligned with the EU only go so far. The Bank of England insists the UK must not become a mere “taker” of rules made in Brussels, Paris or Frankfurt in return for access. Another reason for a wider perspective is the desire to build closer partnerships elsewhere. Asia will account for more than half of all growth in global capital markets in the coming decade, says think-tank New Financial. The EU will represent just a tenth.
Moreover, the UK could benefit from tweaking the rules in some areas. Their one-size-fits-all nature and a lengthy legislative process leave them with rough edges. A reworking of the Solvency II rule book could make it easier for insurers to invest in smaller private companies. Challenger banks could hope for changes to capital requirements that would support their mortgage businesses.
Brexit provides a catalyst for a rethink even in cases where Brussels cannot be blamed for cumbersome rules. An example is the review of the UK’s listing regime, aimed at making London more attractive to start-ups. The challenges thrown up by Brexit mean that improvements, even modest ones, should be considered. Resulting changes would be less of a bang than a whimper.
The Lex team is interested in hearing more from readers. What City regulations are ripe for abolition or reform? Please tell us what you think in the comments section below