January 28, 2023

Andrew Griffith, the city minister, has pledged that the “Edinburgh” package of post-Brexit reforms for the financial services sector will make the sector “as internationally competitive as possible”.

On Friday, Chancellor Jeremy Hunt will launch wide-ranging talks on financial services rules to override EU standards and make the city more competitive against global rivals.

The reforms, initially dubbed Big Bang 2.0 by ministers, range from easing insurance rules under the Solvency II regime, freeing some retail banks from ring-fencing their operations, and easing EU-imposed Mifid 2 restrictions on analyst research that limited corporate coverage and deterred investors.

In an interview with the FT ahead of the announcement, Griffith said the proposed changes would allow the UK to “capture or exploit new opportunities, new innovations and new ways to make markets more liquid and effective”.

He promised the reforms will be the “first out of the bloc to take advantage of Brexit freedoms”. Other sectors, such as life sciences, will follow.

Griffith highlighted some of the proposals in the 30-point reform plan. They include “exiting” packaged retail investments and insurance products (PRIIPS), advice on a new central bank digital currency using blockchain technology, and exploring how to accelerate transaction settlement in London to compete with faster US rivals .

City officials have called on the government to avoid a ‘bonfire of bureaucracy’ as financial firms flock to London over high standards of regulation © Hollie Adams/Bloomberg

Griffith said the government would launch a consultation on the 2016 senior managers regime, but added that this would not refrain from having “some sort of fit-and-proper person regime” to ensure those in positions of power are accountable and be competent.

Other areas include a new green finance strategy and plans to give the Financial Conduct Authority the power to oversee environmental, social and governance assessments.

New long-term asset funds will also be launched in the UK, an open-ended structure that allows for investment in illiquid assets.

Griffiths said much of the work will be completed by 2023, setting a timetable much faster than is possible in the EU, where rule changes usually take years to agree on and implement.

Griffith said the UK was “blessed with high quality regulators” but that “it was right that we set the framework and if the framework says we want to pursue growth and have internationally competitive financial markets then that is absolutely right”.

He added: “It is not for ministers to make those operational assessments for them. They make them every day.”

The UK’s post-Brexit approach to regulation gives regulators more direct power than they had under the EU regime, where highly detailed rules are agreed upon at a political level.

Regulators have pledged to be more “agile” and responsive to industry needs and changing market dynamics. Financial managers and lobbyists say such a change could have more impact than individual rule changes.

On bank foreclosure, Griffith said the government would make an earlier review of the system that “wouldn’t give up on foreclosure.” [but] looks at how in the longer term [it] sits next to the settlement regime. . . for example, there is talk of shutting down some of the retail-only banks.”

Ringfencing is designed to protect banks’ retail arms from losses in their riskier trading activities. However, the existing regulations also apply to banks such as Santander, TSB and Virgin Money, which are mainly involved in retail banking.

City officials have long called on the government to avoid a “bonfire of bureaucracy” once touted as a benefit of Brexit. Global financial firms are flocking to London for the high standards of governance demanded by their home regulators.

Griffith stressed the need to maintain high regulatory standards: “If you look at the package of measures that we’re looking at, it’s not a complete abolition or decommissioning of the rule book at all.”

He added: “We will always compete on the basis of the highest quality regulations in line with international standards.”

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