PA Consulting’s financial services expert, David Biggin, discusses the UK Finance Bill and how the UK is taking back control of financial services as it targets new markets away from EU oversight.
As the UK draws to the end of the transition period with the EU, it is setting out its plans for how its financial services will work from 2021.
UK officials are plotting a path for the country’s financial services away from EU oversight, with a greater emphasis on areas such as fintech and climate change products. This was revealed in the UK finance bill published on October 21, a technical and pragmatic document, and then a statement from finance minister Rishi Sunak on November 9, which was more visionary.
Although there was nothing controversial in either missive, both set the scene for the UK to take back control of financial services regulation while steering the City of London towards new growth areas.
David says: “I read the UK finance bill as a return to the past rather than looking to the future. The method and approach being taken is very much how the UK manages regulation that is not European rules, which is to delegate lots of responsibility for regulation to the regulators, which makes sense."
The EU’s regulatory approach tends to be slow, heavily prescriptive and inflexible as it tries to forge a level playing field across all member states.
David says this approach is not particularly conducive to dynamism, nor to “a trial and error” approach, when it comes to introducing new rules, as quickly making the necessary tweaks is difficult. Many industry sources see the onerous and complex markets in the financial instruments directive (MiFID) II as a classic product of this approach.
Beyond improving the traditional regulatory frameworks, the UK also wants to significantly boost green finance and fintech.
Among the eye-catching measures are launching green sovereign bonds next year, making The Financial Stability Board’s Task Force on Climate-related Financial Disclosures mandatory by 2025 and tweaking the EU green taxonomy with a Green Technical Advisory Group to be tasked with that role.
China already has a green taxonomy — as does the EU — and there is a risk that not only will the UK come with its own one, but also the US, given the incoming administration’s strong sustainability agenda.
David adds: “There is always a risk of divergence. There is no global decision-making body on the topic and there is no global governance on the topic, but by replicating similar structures you stand a chance of at least being to cooperate.”