UK chancellor Rishi Sunak has unveiled fresh details of Britain’s proposed financial regulation after Brexit, promising a new era where officials will consider “growth and competitiveness” as they oversee everything from the world’s oldest banks to fast-growing fintechs.
Sunak also laid out plans for increased parliamentary scrutiny of both the Prudential Regulation Authority, which is part of the Bank of England, and the Financial Conduct Authority, a separate agency that regulates the financial services industry.
The proposals — part of a consultation that is open to feedback until February 9 — build on Sunak’s Mansion House speech in July, which promised more agile post-Brexit financial regulation that would take greater account of City’s potential to raise the long-term growth rate of the UK economy.
“Today’s proposals will support the future strength of the UK as a global financial centre, ensuring an agile and dynamic approach to regulation that supports the growth of the UK economy, without diverging from our continued commitment to high international standards,” Sunak said.
The UK is facing a delicate balancing act as it undertakes the mammoth task of recreating EU financial rules at a national level. Ministers want to make the UK attractive, but without embracing light-touch regulation that would could allow firms to take risks that would ultimately hurt themselves or their customers. Such an approach would make it harder to do business internationally from the UK.
“The proposals reflect recognition that the continued growth of the financial services sector is an international pursuit,” said Monica Gogna, head of UK financial regulation at EY Law, the legal business advisory arm of Big Four firm EY. She added that the UK clearly wants to “remain at the forefront” of financial regulation.
Officials stressed that the new objective for the FCA and the BoE to “consider both the implications for growth and international competitiveness of their regulations” could give the UK an edge over the EU because regulators in Brussels do not have a mandate to consider growth.
The Treasury said examples where the new rules might make a difference included a more flexible implementation of the double volume cap in the wholesale capital markets regime and reforms to the issuing of prospectuses.
“At a very high level, it’s moving in the right direction,” said a senior executive at a large US bank, who added that “the government has got the message”. The person added that the key thing was “how [the approach] was calibrated” and whether measures such as increased parliamentary oversight were used to hold regulators to account.
A senior executive at another large US bank said they would be closely watching specific aspects, such as how the UK reviews the EU’s fund management regime, Mifid.
“The on-the-ground question for [financial services] firms is ‘What’s going to change, when, and what do I need to do?’” said Bob Penn, a partner at law firm Allen & Overy. “The paper largely sets out how the framework will change, but we need a road map for that process.”
UK Finance, which represents around 300 firms across the industry, said the proposals “rightly seek to balance enhancing the UK’s international competitiveness, while ensuring we maintain the highest regulatory standards”.
But Barney Reynolds, global head of the financial services industry group at law firm Shearman Sterling, said: “The UK can and should move far faster in capturing the benefits of a reordered regime.” He argued for an enhanced role for the courts in enforcement actions to “to ensure objectivity over whether regulator rules are made and enforced predictably”.