21 July 2022

FT's Thomas: A post-Brexit bonanza eludes both the City and the EU

It was billed as a package to revitalise the capital markets, opening up access for start-ups and high-growth companies in particular. The plan included digitisation, reduced bureaucracy and a more international outlook. It envisaged enabling new forms of capital raising through special purpose acquisition companies, and permitting the use of the dual-class share structures beloved of entrepreneurial founders.

Yes, that’s right. Germany has pretty big ideas for making its markets more attractive and competitive on the world stage. If it 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 one European academic, referring to last year’s UK review which proposed similar ideas for rejuvenating London’s capital markets. It isn’t a one-off. As the UK government doubles down on the idea that diverging from Brussels rules can benefit the City — with even Labour leader Keir Starmer making similar comments this month — the changes under way in the EU and Britain to date have felt surprisingly similar.

Both are updating Solvency II insurance rules with the aim of making the system work better and freeing up capital for long-term investment. The UK plans to limit when companies must produce a lengthy prospectus document when raising money. The EU’s listings consultation earlier this year proposed the same, as well as aping other moves. “The UK has been tidying up its rules in important ways that will improve access to the capital markets,” says an executive at one firm. “But it’s hard to see that as a Brexit dividend if the EU can copy-paste and say ‘we’ll take this and that’.” There are good reasons why divergence between the pair may be limited. Both start from the same gargantuan rule book. The UK, much as it moaned and groaned about the process, steered the EU’s approach and wrote much of the detail. The UK is committed to sticking with international standards, like the Basel rules on banking regulation. Then there is the fact that the clear preference of the UK financial services industry was to stay aligned with Europe.

True, that thinking had to change slightly as it became clear that the sector’s hopes for shared regulation and the market access that came with it counted for nothing in the political wrangling over Brexit. But the basic point remains. “The overwhelming fear is that the desire to find post-Brexit opportunities will result in change for the sake of change, which is just dead cost,” says Simon Gleeson, partner at Clifford Chance. Even as the regulatory shadowboxing continues, the rule books will drift apart in a costly manner...

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