A plan to help the city
The British government wants to scrap post-2008 crisis rules to turn London back into the world capital of financial services. Brexit has happened.
The British government on Friday announced a series of reforms aimed at boosting the growth of the country’s strong financial sector after Brexit, but amid fears it has not forgotten the lessons of the 2008 financial crisis. Prime Minister Rishi Sunak said on Friday that while “the UK has always had and will continue to have an incredibly well-respected and robust regulatory system for the financial services sector”, “it is also important to ensure the sector remains competitive”.
Chancellor of the Exchequer Jeremy Hunt visited Edinburgh, Scotland on Friday to detail “thirty regulatory reforms to secure the UK’s place as a major global financial centre” to industry representatives.
In particular, it discusses some of the measures implemented after the 2008 crisis, in particular the measures to guarantee the separation of retail and investment activities within a bank, aimed at preventing conflicts of interest and protecting consumers’ money (“ringfencing”). . London intends to exempt “banks with no major investment activity” from these restrictions. “We must be careful not to learn the lessons of 2008, but at the same time accept that banks today have stronger balance sheets than they did during the financial crisis,” Jeremy Hunt argued on Friday.
Fran Boait, director of the NGO Positive Money, said it was “large-scale deregulation that destabilizes an increasingly fragile financial sector with huge risks and few benefits for the public”. These announcements complement the draft law currently under discussion in Parliament and specifically set regulators a secondary objective: to promote the growth and competitiveness of the sector. The measure has also been criticized by opponents of the reform, who fear it will distract regulators from their core mission of protecting financial stability and consumers. Another source of criticism is London’s intention to remove the cap on bankers’ bonuses inherited from the EU.
A few months ago, the executive body also started reforms in insurance companies, which until now were governed by the European Solvency II directive. London is notably planning to ease capital requirements for companies in the sector, hoping to unlock tens of billions of pounds for green and infrastructure investment. However, the government has recently abandoned the power to directly intervene in the regulation of financial services, as it once intended.
Industry experts welcome
For the Treasury, “Edinburgh’s reforms will give unprecedented strength to British financial services, taking advantage of the opportunities offered by Britain’s exit from the EU.” However, post-Brexit, London has seen Paris and Amsterdam slip away from their position as Europe’s leading financial centre. The Conservative government is “trying to find a basis for Brexit,” said Steve Schifferes, professor of political economy at City University London.
But he says these reforms will not create a “big bang” across the Channel like the one experienced after deregulation in the 1980s. , particularly during the next general election scheduled for 2024, some of the measures “may not come into force if Labor is elected”.
Industry professionals, they applaud. Miles Celic, director of TheCityUK, one of London’s main financial lobbies, believes that this is a “comprehensive set of reforms that, if implemented effectively (…) will help strengthen the UK’s attractiveness”. The financial sector employs more than 2.3 million people, according to the Treasury, generating £216bn (€250bn) a year and £76bn (€88.1bn) in tax revenue for the state.