They are right to be concerned: What hardcore Brexiteers want done in months can only responsibly be tackled over years.
Britain’s Trades Union Congress joined The Institute of Directors and several other workplace, environment and justice interest groups late last week to demand the government scrap its wide-ranging bill that aims to revoke or rewrite all EU law by the end of 2023. The groups warned in a letter that the bill could cause confusion and disruption, threatening businesses and jobs.
The separate upcoming Financial Services and Markets Bill would also scrap swathes of EU-derived financial laws, which are often highly detailed and technical, replacing them with a broader framework and leaving regulators to rewrite specific rules. Here too, the appetite for change is limited across most of the industry and from lobby groups such as The City UK, UK Finance and the Association for Financial Markets in Europe.
“Talk of tearing up rulebooks is something that the finance industry is uncomfortable with,” says Miles Celic, chief executive of The City UK. “The reality is that the mainstream of the industry was pretty comfortable with the majority of European regulation that was onboarded. The UK did very well in getting its desires across when these regulations were being negotiated.”
The City minister Andrew Griffiths said the government would take a pragmatic approach to rewriting rules and wouldn’t pursue divergence from EU standards for its own sake, when he spoke at a Financial Times banking conference on Tuesday. That is closer to what the industry wants, but many still fear a rushed approach to hit arbitrary deadlines demanded by Brexit blow-hards.
Griffiths signaled the UK could relax Britain’s ring-fencing rules that separate retail and investment banking. That’s a very unpopular rule among the UK’s biggest banks because it adds to costs and capital requirements. However, the easing of the rules is only being considered for banks with very small trading operations and not any significant investment bank. That’s more damp squib than Big Bang.
Regulatory overhauls, like any supply-side reforms, aren’t cost free. The industry is already busy preparing for a new Consumer Duty to be imposed by the Financial Conduct Authority from next summer. Banks, insurers, fund managers and so on must review all their products to ensure they are easy to understand, being sold to the right people and offer fair value, a somewhat subjective term.
The industry does have some demands for change, but they are focused, specific and technical — none of it world-changing stuff. The recent Wholesale Markets Review of rules around stock and bond trading provides one example of the kind of limited tweaks the industry is after: The review ditched an EU-derived obligation that UK firms have to trade stocks on a UK-regulated or equivalent third-country venue. That leaves Britain with a marginally more market-friendly rule that is in line with the US, Australia and Hong Kong, among others.
Many changes the industry wants are similarly niche. One example: Banks want better treatment for lending to companies that don’t have a credit rating and aren’t listed on a stock exchange. Such borrowers are judged to be riskier than unrated companies that are listed — and this makes lending costlier for banks in the UK and Europe where many companies aren’t listed in contrast to the US.
Now, there could be some value in post-Brexit Britain being free to implement this rule its own way without having to negotiate and sign a pan-European version, but this is still no game-changer.
British regulators must be allowed the time and resources to consult with all interested parties — from big banks to consumer groups — on whether and how each of these changes should be made. And as they go along, the Bank of England needs to regularly review the cumulative effects of changes on overall capital levels and the soundness of the system.
One thing the industry has pushed for and won is a new obligation for regulators to consider Britain’s international competitiveness when writing rules. But this isn’t the gateway to a laissez faire Singapore-on-Thames that some might think.
Regulators are clear that protecting competitiveness first and foremost means being in line with international standards so that the UK remains a trusted place to do business. The finance industry wants much the same thing, but it also hopes the new obligation will stop regulators “gold-plating” UK rules, or making them more conservative than global norms.
Where the industry thinks divergence from the EU could be valuable is in more forward-looking areas that don’t have fully established standards. That means things like digital asset technologies and green finance. But crypto looks like a disaster zone and the climate crisis is the archetype of a problem that needs a globally coordinated solution.
Financial leaders ultimately want to limit the loss of business from quitting the EU while trying to win more business from Asia and the US. Burning the rulebooks risks losing even more business from all three. So Sunak needs to neutralize his party’s rump of ideological ultras. Their passions just aren’t shared that widely in the real world.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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