03 November 2016

Financial Times: City should welcome escape from burden of EU rules, says report

Mr Reynolds argues the country should use its remaining time as an EU member to beef up the “equivalence” regimes that provide single market access for some financial services from third countries judged to operate under an equally strong regulatory framework.

But if this proves politically unworkable, he says the UK should be comfortable opting for a deal that allows it to strip out many of the EU’s “problematic” pieces of legislation.

“Unburdened from the shackles of European social policy,” Mr Reynolds says, the UK could “rethink its regulatory framework entirely and move to better, more targeted regulation. This approach is not entirely new. In some ways, it winds the clock back to the situation before the passport came in partially in 1995 and more fully in 2007.”

Mr Reynolds argues that pushing equivalence into fresh sectors that really need it — such as wholesale lending, mortgage provision and payment services — would serve the same purpose as companies’ retaining their passports. But it would have the added benefit of the UK not having to make concessions over the free movement of people, or rely on decisions from the European Court of Justice.

This “enhanced equivalence” should then be capped with a bilateral UK-EU deal that would pledge not to politicise decisions on whether a regime is equivalent, and a mutual recognition of each other’s court judgments, he says. [...]

Mr Reynolds, however, said the European Central Bank “has no legal powers to prevent global banks and financial institutions from trading and clearing instruments denominated in euros”.

Either way, he said the UK should use Brexit as an opportunity to change domestic laws and the regulatory landscape. He would like to revive an obligation by regulators to consider the competitiveness of the UK’s financial sector. This was killed off after the crisis, when the light-touch approach of the old City regulator, the Financial Services Authority, was widely criticised.

Instead, Mr Reynolds would strip the watchdog of its newly inherited antitrust powers, which were part of the post-crisis reforms of tackling “too-big-to-fail” institutions and improving competition among financial firms. [...]

Mr Reynolds proposes a number of ways that financial services firms would be able to continue doing business in the EU even without single market access via passporting or an enhanced equivalence regime.

One is to make use of “reverse solicitation exemptions” allowing financial institutions to provide cross-border services to a client without being registered or authorised in that client’s member state, provided that the services are provided on the initiative of the client.

Another is to make use of the existing EU laws that Mr Reynolds said allowed cross-border dealings — “including multiple on-the-ground visits” — without a local branch or licence. If needed, he added, firms could set up an EU subsidiary to do business with clients in the bloc, while shifting the business back to the UK headquarters via “back-to-back” trading arrangements.

Full article on Financial Times (subscription required)

Report: A blueprint for Brexit - The future of global financial services and markets in the UK

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