A post-Brexit windfall escapes both the City and the EU

A post-Brexit windfall escapes both the City and the EU

It was presented as a package to revitalize capital markets, opening access to start-ups and high-growth companies in particular.

The plan included digitization, reduction of bureaucracy and a more international outlook. It envisioned allowing new forms of raising capital through special purpose acquisition companies and allowing the use of the two-class shareholding structures dear to company founders.

Yes, it’s true. Germany has big ideas to make its markets more attractive and competitive on the world stage. If this all sounds desperately familiar, that’s because it is. “Berlin reads English and Lord Hill’s document was not difficult to understand” was the verdict of a European academic, referring to last year’s British study which offered similar ideas to rejuvenate markets capital from London.

This is not a unique case. As the UK government insists that deviating from Brussels rules can benefit the city – with even union leader Keir Starmer making similar comments this month – the changes underway in the EU and the Britain to date have looked surprisingly similar.

Both update the Solvency II insurance rules with the aim of improving the functioning of the system and freeing up capital for long-term investments. The UK plans to limit when companies must produce a lengthy prospectus document when raising funds. The consultation on the EU lists earlier this year proposed the same, along with other measures.

“The UK has significantly overhauled its rules which will improve access to capital markets,” says a company executive. “But it’s hard to see this as a Brexit dividend if the EU can cut and paste and say ‘we’ll take this and that’.”

There are good reasons why the divergence between the pair may be limited. Both start from the same gargantuan rulebook. The UK, while whining and moaning about the process, led the EU approach and wrote much of the detail. The UK is committed to meeting international standards, such as the Basel rules on banking regulation.

Then there is the fact that the clear preference of the UK financial services sector was to stay aligned with Europe. Admittedly, this thinking must have changed slightly as it became clear that the industry’s hopes for shared regulation and the market access that came with it were irrelevant in the political wrangling over Brexit.

But the fundamental point remains. “The overwhelming fear is that the desire to find post-Brexit opportunities will result in change for change’s sake, which is just a dead cost,” says Simon Gleeson, partner at Clifford Chance. Even if regulatory shadowboxing continues, the rulebooks will deviate in costly ways.

In all honesty, it’s still early days. The government has just published a Financial Services Bill this week that will set the framework for a regulatory approach that keeps policy direction broad and hands responsibility for the details to regulators.

But the progress made so far suggests that there are no quick and easy ways to ensure sustainable competitive advantage in other markets. This calls into question the unwelcome pressure for regulators to be mandated to seek “competitiveness” in their work. Fear that cautious watchdogs would thwart the fabulous opportunities on offer gave rise to the problematic idea of ​​a power for ministers to ‘appeal’ to regulators’ decisions.

Ultimately, while there is a strategic vision for how Brexit freedoms can strengthen the financial services sector and the City’s place on the world stage, it has yet to be elucidated by the government. , or even by anyone else.

It will take more than tinkering in parallel with the Europeans. At a recent town dinner that discussed shrinking allocations to UK equities and the lack of local global companies, the reforms to date were barely mentioned. Instead, the focus has been on cultural attitudes to ownership and risk taking, and the underlying structure of savings, pensions and investing. .

Chancellor Nadhim Zahawi pledged this week to make the UK “the most open, inclusive, welcoming, competitive, secure and transparent place to do business in financial services in the world”. But the vision of an internationally-minded city has never adequately answered the question of what additional business is won, or from where. Either way, desperate City advisers report receiving mixed messages about whether allowing foreign businesses to operate from London without the plethora of permissions, licenses and rules will ever really fly – with regulators or politicians.

Anything that strays from consumer protection naturally causes irritation. There have even been suggestions of give and take measures against an EU that erects barriers around the single market and tries to leverage more activity in the bloc. “When it comes to the opportunities of Brexit, I’m not sure anyone on the political spectrum has a clear idea in their mind what that means,” Gleeson says.

A consolation, such as it is, may be that the EU’s progress on its financial services priorities has been equally hesitant. His adjustment to the rules belies the fact that the momentum for creating properly integrated financial services or capital markets has weakened and the project still faces huge political hurdles. In this sense, the EU and the UK remain divided by politics but united by strategic drift.

helen.thomas@ft.com

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