PA Consulting’s financial services expert, David Biggin, comments on the direction of EU-UK financial regulatory divergence in FT Global Risk Regulator.
The article discusses how the UK has ceded its top spot among global financial centres to New York and is also being outpaced by its rivals, which is pressuring the country’s authorities to rethink its regulatory frameworks.
TheCityUK’s recommendations focus on several themes: making the UK more open and competitive; increasing its share of financial services and professional markets; and building new markets centred around future demand.
However, the UK government is already following many of these ideas. David says: “It feels very much like an agenda to hold the government’s feet to the fire so they actually follow through on some of these things.” He notes that some of the recommendations, such as the mutual recognition of qualifications, are complicated and will take time to implement. Attracting top talent globally is key to the City’s success.
The article goes on to say that many bankers are wondering what this drive for competitiveness will mean in terms of the UK’s rules diverging from the EU.
David believes that UK policy-makers are pursuing four main themes. The first is around efficiency. For example, the UK is not implementing the EU’s sixth anti-money laundering directive, believing it has all the necessary powers in UK law to tackle this type of crime. The second one revolves around the UK’s international competitiveness and is manifested in the Khalifa review and Lord Hill’s review of the UK listing regime (GRR, March 2021: Kalifa report welcomed by UK fintechs, but will the government act? and Lord Hill proposes radical shake-up of UK’s listing regime to boost competitiveness). “Through its review of MiFID II, the UK has signposted a range of other things to work on to reduce the burden of firms such as reducing the amount of disclosure needed and making access to data more affordable,” says David.
The third theme picked up by David is unpicking poor quality compromises embedded in EU regulatory texts, particularly those linked to the post-financial crisis reforms. He cites revisiting the Solvency 2 insurance rules as an example, and tackling the penalties associated with holding long-term assets against annuity liabilities. The government also wants to make Solvency 2 work better for UK insurers.
“And then I think the fourth one is probably the biggest trend that we will see from our regulators here, which is to go back to a kind of the more old-fashioned style of regulation,” says David. “So it’s moving away from having to codify everything in hardcode.” He says this has been demonstrated by the PRA’s proposed approach to small bank supervision and the decision to rely on existing contractual arrangements rather than implement the Central Securities Depositories Regulation settlement discipline rules.