Mayors of the City of London have supported government financial services reforms as necessary to keep London competitive outside the EU, even if the removal of safeguards from the latest financial crisis increases the stakes.
However, many of the Financial Times’ City Network – a group of 50 CEOs – did not think Chancellor Jeremy Hunt’s “Edinburgh Reforms” were significant enough to bring about a second “Big Bang” for the City of London.
On Dec. 8, Hunt unveiled the city’s biggest raft of reforms in decades, including post-2008 rules on banking restrictions, as lenders separate their retail businesses from their riskier investment banking arms.
Other target areas for reform include the senior managers system – which places personal responsibility for corporate problems on bosses – and aspects of EU regulations such as Mifid II, which governs financial markets, and second-solvency rules for insurers.
The document contained more than 30 proposals focused on scrapping remaining EU law on financial services and replacing it with a new framework designed specifically for the UK.
Mervyn Davies, a former banker who was a minister during the post-crash period, said the UK faced increased competition from cities such as New York, Frankfurt and Paris that made reform necessary.
He noted the required balance between risk and reward, but said it was time to move forward while remembering the lessons learned from the recent financial crisis.
“Some of the regulations we have put in place make us less competitive. We have taken EU directives and made them tougher. Our institutions must be competitive or risk becoming irrelevant on the world stage.”
Other city leaders said the stakes will inevitably increase with changes in rules that severely restrict how the city operates. But, no one worried that this would be at an uncontrollable or unacceptable level.
“Of course risks rise when rules are relaxed, and all of us in financial services and beyond must identify and manage these risks all the time,” said Amanda Plank, Chief Executive Officer of Aviva.
She added, “The way to deal with risks is to understand and manage them, and not necessarily try to freeze them with fixed laws.”
She said the chancellor had put in place “reasonable measures” that would keep London at the forefront of global financial centres. “Managing risk to support growth is the goal of well-regulated markets.”
Sir Wayne Bischoff, chairman of JPMorgan Securities, said the first “big bang” of the 1980s, which referred to the liberalization of financial markets under Prime Minister Margaret Thatcher, was different in magnitude.
“This is more of an adjustment,” he said, “a fairness of sorts.” “However, Edinburgh’s reforms will be instrumental in halting the city’s relative and measurable decline over the past five years.”
Ann Richards, chief executive of Fidelity International, agreed that it was “a less high-impact, more sensible rationale to drive the competitiveness of UK financial services and markets”.
She added that capital market reforms would “keep us in line with other financial centres”, singling out consumer-side proposals around online access to advice and guidance as well as stimulating investment demand.
Many in the City Network welcomed the consultation on loosening the strict rules associated with the senior managers system.
Bischoff said its repeal could psychologically prompt counterparties to question easing regulation [but] in perfect time, and if there are no accidents to indicate it, then its absence is accepted.”
Miles Selleck, chief executive of The CityUK, the industry lobby group, said the changes to the senior managers system “will be an important test case”, adding: “There have been many instances where it has been cumbersome, bureaucratic and slow. There is an opportunity to streamline the process without undermining ambitions and purpose behind her.”
Claire Woodman, head of Emea at Morgan Stanley, said that Edinburgh’s reforms should increase the efficiency and overall competitiveness of Britain’s financial market.
But Woodman said London’s status as a global financial center will also depend on broader ecosystem development such as taxation and skills, as well as speed of implementation “so the city can start to benefit from these reforms”.
Ann Kearns, vice-president of Mastercard, said the government was keen to show some benefits from Brexit, but warned the impact could be lessened if consultations dragged on and ended up dampening major changes.
Regulations have changed a lot since 2008. They have made things safer. But it has become so stressful that some boards spend almost all of their time on this topic and minimize important discussions about business growth.”
But Guy Hands, head of private equity group Terra Firma, warned the package would not be enough to reverse the overall impact of Brexit on the city, which still lacks a parity deal with the EU that recognizes each other’s rules.
“Unfortunately, that horse fell again in 2016 and the City of London’s decline was inevitable and entirely predictable. While people can disagree about the speed of Britain’s potential financial and social decline, vote in 2016. [has] Putting Britain in a direction that will be very difficult to reverse. The City of London will be one of its first victims.”
Mike Rake, the former BT and KPMG chairman, agreed with Hands, and noted that many of the reforms portrayed as “Brexit freedoms” could have been done within the EU.
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