According to the U.K. government, extensive reforms to financial regulation will “choke off growth” in the EU.
It includes a relaxation of a rule that requires banks to separate their retail operations from their investment arms. This measure was first introduced following the 2008 Financial Crisis.
Another post-2008 regulation that will be reviewed by the government is accountability for top finance executives. Individuals at regulated firms can face penalties for poor conduct, workplace culture, or decision-making under the Senior Managers Regime, introduced in 2016.
Among the changes announced in the Edinburgh Reforms are changes to short-selling rules, how companies list on stock exchanges, insurers’ balance sheets, and real estate investment trusts.
According to Jeremy Hunt, the U.K. must maintain its status as one of the world’s most open, dynamic, and competitive financial hubs.
“The Edinburgh Reforms take advantage of our Brexit freedoms to deliver an agile, home-grown regulatory regime that benefits our businesses and people,” he said.
“We will go further by reforming burdensome EU laws that stifle the growth of other industries such as digital technology and life sciences.”
Government officials claim the reforms will capitalize on freedoms offered by Brexit, replacing or scrapping hundreds of pages of EU laws governing financial services.
Reuters reported that London lost billions of euros in daily stock and derivatives trading to EU exchanges after leaving the EU, arguing that leaving the EU damaged its financial competitiveness. Earlier this year, researchers at the London School of Economics predicted that Brexit would negatively impact financial services.
Boosting the U.K.’s sluggish economic growth is another government priority, as the country is forecast to be in a long recession.
Among the few policies announced by Hunt’s predecessor, Kwasi Kwarteng, that remained after his chaotic “mini budget,” was the removal of the U.K. cap on bankers’ bonuses.
After the deregulation of the London Stock Exchange in the 1980s, which attracted a host of global banks and investment firms to the U.K. and rapidly expanded the City of London’s financial industry, Kwateng promised a “Big Bang 2.”
The regulators’ remit would also be expanded to include enhancing the competitiveness of the U.K. economy, particularly the financial services sector.
John Vickers, former chair of the Independent Commission on Banking, warned in a letter to the Financial Times this week that special treatment of the financial sector could be detrimental.
Labour’s shadow city minister, Tulip Siddiq, called the proposed reforms “race to the bottom.”
The Tory government has a history of introducing more risk and potentially more financial instability because it can’t control its backbenchers, she said, referring to internal infighting within the party.
The City does not want weak consolation prizes for being sold down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.
The reforms are aimed at making regulation more efficient rather than a race to the bottom, according to Kay Swinburne, vice chair of KPMG UK’s financial services practice.
The majority of these reforms have been trialed before, but they represent a step towards future-proofing the competitiveness and long-term growth of the UK’s financial services industry.
