City executives applauded government plans to reform the UK’s financial markets but warned that ministers needed to implement them quickly or risk losing out to financial centres in the EU and US.
On Friday, chancellor Jeremy Hunt unveiled a wide ranging set of proposals and consultations to remove onerous regulatory burdens on financial institutions and boost post-Brexit competitiveness.
Hunt emphasised the “pragmatic” nature of the plans, initially billed by ministers as a “Big Bang 2.0” but now known as the Edinburgh Reforms.
They consist of over 30 proposals, many of which focus on repealing retained EU law in financial services and replacing it with a new framework tailored to the UK.
Many in the City welcomed the reforms after initial fears that they would bring unfettered deregulation to the UK.
“It’s not Big Bang, it’s thoughtful and effective Darwinian evolution,” said Mark Austin, partner at law firm Freshfields and author of a recent government report on company fundraising.
“Now is the time to stop talking about doing and to actually do. It’s not a question of deregulation for deregulation’s sake, it’s about smarter regulation that makes the UK financial services sector thrive even more effectively on the global stage,” he added.
Simon Morris, a partner at law firm CMS, described the reforms as a “series of strategic adjustments . . . some respond to new challenges, such as crypto, while others exercise post-Brexit opportunities, such as simplifying aspects of securities trading”.
Brexit has so far seen the UK financial services sector lose some trading activities and staff to the EU, and the chancellor wants to use the reforms to free British businesses from rules set by Brussels.
However, the EU is also reforming many of these areas and some executives said Friday’s package is needed to simply keep pace with Brussels. They warned that the government needs to speed up the new measures, many of which are likely to be delayed owing to the need for consultation and review.
Anand Sambasivan, chief executive of PrimaryBid, a retail investment platform, said plans to reform the prospectus regime — the rules around the use of a prospectus which is needed when a company floats on the London stock exchange — are “critical upgrades to the UK’s capital market, particularly for retail investors”.
But he added: “The City has been working on this for over two years so what matters now is implementation speed from the government.”
Some of the rules being overhauled — such as bank ringfencing, which forced lenders separate their retail activities from their riskier investment banking arms — and senior manager regimes, which made directors personally responsible for infractions — were put in place after 2008 to prevent another financial crash, leading to concerns that the UK will water down protection against similar crises in the future.
Romin Dabir, partner at Reed Smith, said many executives felt that the senior managers’ regime, for example, went too far but that “a significant dilution of the rules is likely to lead to accusations that the government has bowed to pressure to turn the clock back to the bad old days of ‘Casino capitalism’”.
But Alasdair Haynes, chief executive of Aquis Exchange, an equity trading exchange, welcomed the proposals as “an evolution — rather than revolution — that will allow tailoring and innovation without eroding the regulatory foundations required for continued trust in financial markets”.
Other reforms include plans for reviews on rules over short selling, investment research and the settlement of trades in the UK. Hunt also plans to consult on the regulation of ratings for the fast-growing environmental, social and governance (ESG) sector, which has been accused of greenwashing amid confusion over standards.
The government has also proposed to abolish current disclosure rules for Packaged Retail and Insurance-based Investment Products (PRIIPS), which cover retail funds in the EU, and to consult on a new framework — a move that was widely welcomed by the industry.
“The investment company industry has just breathed a collective sigh of relief,” said Richard Stone, chief executive of the Association of Investment Companies. “The FCA should act swiftly to sweep away the confusing mishmash of disclosures.”
“The removal of PRIIPS and its replacement with a UK regime is the major announcement from a post-Brexit perspective,” said EY’s Chris Woolard.
Some bank executives also welcomed the government’s move to consult on relaxing the so-called ringfencing regime, which some complained had locked up capital and made banks less efficient and overly cautious.
A change proposed under the reforms would be to raise the threshold at which banks would need to ringfence their businesses, from £25bn of retail deposits to £35bn.
David Postings, chief executive of UK Finance, said the reforms would be “a major step in ensuring the sector remains strong and internationally competitive”.