- Britain says high standards will be maintained
- UK flags consider reforms during financial crisis
- London faces new competition from EU hubs
- A consultation on the digital pound is planned
LONDON, Dec 9 (Reuters) – Britain took a series of measures on Friday to bolster London’s role as a global financial hub, which has been under strain since Brexit opened up new competition from Amsterdam, Paris and Frankfurt.
The planned reforms also include a review of rules put in place after the financial crisis a decade ago to hold bankers accountable for their decisions and ease capital requirements for smaller lenders after much lobbying by banks.
Chancellor of the Exchequer Jeremy Hunt said it would be wrong to describe the 30 measures as a “Big Bang” – a reference to stock market deregulation in the 1980s – which would usher in tougher rules introduced after the global financial crisis.
“We need to make sure we don’t learn the lessons of 2008, but at the same time recognize that banks today have stronger balance sheets,” he said at an event organized by the FT.
As well as competing with New York and Singapore, Amsterdam has overtaken London to become Europe’s top stock trading hub, the city has been largely cut off from the European Union by Brexit, putting pressure on the government to ease regulations.
Leaving the European Union allows Britain to write its own rules, but because it hosts so many international banks, it has little room to radically depart from international norms.
“The Government’s approach to reforming the financial services regulatory landscape recognizes and protects the foundations on which the UK’s success as a financial services hub has been built: flexibility, consistently high regulatory standards and openness,” the Treasury said in a statement.
Hunt announced his plans at a meeting with financial sector officials in Edinburgh.
Now dubbed the ‘Edinburgh Reforms’, the proposed reset has been watched as ‘Big Bang 2.0’, raising expectations of a major regulatory push that has left banks fearing costly systemic changes.
But instead of wholesale dismantling of the rules, the focus has shifted to reviewing and modifying the rules in line with global standards.
The set of planned reforms includes an overhaul of securitization and short-selling rules, an overhaul of prospectuses issued by companies when they list, and a plan to repeal and reform rules that applied when Britain was in the EU.
Other plans include a consultation in the coming weeks on a central bank digital currency, a project Prime Minister Rishi Sunak is keen on as finance minister.
There will also be a consultation on the regulation of environmental, social and governance (ESG) impact rating agencies.
“It’s important that people don’t overthink it — there’s no point in going back to the world before the financial crisis,” said Jonathan Herbst, a lawyer at Norton Rose Fulbright.
The EU is revamping its financial rules to reduce dependence on London and is leading the way in areas such as cryptoassets.
The reforms target two sets of rules introduced by Britain after the financial crisis a decade ago, when the government had to bail out undercapitalized banks and several private bankers were punished.
The first set, known as the senior managers and certification regime (SMCR), requires banks and insurers to name those responsible for specific activities, making it easier for regulators to punish them when things go wrong.
Bankers have complained that regulators are taking too long to vet these senior appointments.
A second set of rules requires banks to “fence” their retail arms with a capital cushion to protect deposits from bursting into riskier activities, such as trading derivatives.
The ring-fencing regime will be reformed to free up retail-focused banks and ease “unnecessary regulatory burdens on firms while maintaining depositor protection”.
Banks have lobbied to either repeal the rule or significantly raise the deposit limit, which triggers the demand. The changes will ease the burden on smaller banks to help the UK’s long-running efforts to increase competition in a sector dominated by HSBC, Barclays, Lloyds and NatWest.
Bank of England Deputy Governor Sam Woods has said he will defend fencing rules in 2020 “to the last drop of blood”. The BoE said on Friday it would work with the ministry to ensure a safe and competitive financial system.
The ministry will also review the EU-era stock and bond trading requirements, known as MiFID II, in particular the rule requiring brokers to split or “unbundle” client costs for carrying out stock options research and stock orders.
Britain has already begun initial reforms on the Financial Services and Markets Bill, which has already been approved by Parliament. This includes giving regulators the added goal of focusing on the City’s global competitiveness when writing regulations.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said London’s financial center had been severely disrupted since Brexit. “Unfortunately the attraction just isn’t there, many of the UK’s brightest companies are being snapped up by foreign investors and London is losing its top share trading status,” he said.
Other reforms already announced include a cap on banker bonuses and easing capital rules for insurers. A public consultation on the regulation of crypto-assets was also mentioned.
Reporting by Huw Jones, written by William James; Edited by Kate Holton, Elaine Hardcastle and Louise Heavens
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