UK to ease financial rules in post-Brexit shake-up to boost global clout

UK to ease financial rules in post-Brexit shake-up to boost global clout

The British government has unveiled a major shake-up of financial regulations, in what's being seen as an attempt to shore up the country's status which has been buffeted by Brexit.

The UK's departure from the EU put up barriers to financial business with the continent, and boosted competition from Amsterdam, Paris and Frankfurt. The Dutch city has overtaken London to become Europe's top share trading centre, though the UK capital remains the largest financial services centre 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, dynamic and competitive financial services hubs in the world".

But critics say the changes will barely dent the pain caused by Brexit, and could reintroduce the kind of risk that led to the 2008 global financial crisis. Prime Minister Rishi Sunak has insisted that regulation will remain "robust".

The government's "Edinburgh Reforms", named after the Scottish capital where Hunt unveiled the package of more than 30 measures, include:

  • Lifting a cap on banker's bonuses

  • Easing capital requirements for smaller lenders

  • A review of the UK's senior managers regime, enabling bankers to be held accountable for their decisions

  • Relaxing "ringfencing" rules intended to separate investment banking from retail operations

  • A plan for repealing and reforming EU rules dating from Britain's membership and "building a smarter regulatory framework for the UK"

  • Regulators will be obliged to pay heed to the UK's global competitiveness when writing rules

Analysts say the financial sector will welcome the new measures while playing down their significance. Some point out that the UK has little scope for diverging radically from international norms.

"The direction of travel will definitely 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 any move back to a pre-financial crisis world. Most of the UK regulatory regime reflects either international commitments or policy developed over many years to reflect the lessons of experience."

Other critics argue that several of the reforms have nothing to do with Europe and will do little to offset Brexit damage.

Some point out that the UK no longer has any influence in shaping EU rules now that it is outside the bloc -- and that the departure from the EU's single market has hit the UK's financial services just as much as it has 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 staff and £1.3 trillion (€1.5 trillion) of assets have crossed the English Channel to the continent.

The EU is updating its own financial rules to reduce remaining reliance on London and is ahead in areas like cryptoassets.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown, said London’s financial centre has been severely held back since Brexit. "Sadly, the allure simply isn't there, with many of the UK’s brightest companies being snapped up by overseas investors, and London losing its top share-dealing status," she said.

But the pro-Brexit Institute for Economic Affairs (IEA) welcomed the measures, arguing the EU was considering similar moves in some areas.

"Financial services is a sector where the UK has a substantial comparative advantage. Brexit provides the opportunity to steal a march on the EU and build on these strengths," commented IEA economist Julian Jessop.