As the deadline for the UK to officially leave the European Union edges ever closer, the UK is looking to align its financial services regulation with centres outside the EU bloc such as New York, Hong Kong or Tokyo, according to Rishi Sunak, the Chancellor of the Exchequer, speaking at a fringe event at the virtual Conservative party conference
Sunak said that the government will “review our regulatory framework” on financial services and that “not being inside the EU more generally gives us a chance to do things differently”
He added, “The world comes to London to trade, to buy, to sell, to raise capital, to invest. I want that to remain the case, it is a source of pride and strength for our economy. Things have to be slightly different now we’re outside the EU and they will be.”
He noted that the right balance needed to be found between regulators, Parliament, and the Treasury, to ensure there’s accountability but also flexibility to respond.
Currently, City of London firms are waiting to hear whether they will have access to EU’s financial markets, As things stand, if a deal between the UK and EU cannot be struck, they will lose their “passport” for selling their services in the EU. This means that they will have to rely a system of “equivalence,” whereby the EU would be able to decide unilaterally whether the U.K.’s rules are close enough to its own regulations to allow them in the door.
Even if there is an equivalence regime, there will be too much uncertainty over the long-term prospects of access which is why many UK based financial institutions have already or making plans to establish a continental base.
European Commissioner for financial services Valdis Dombrovskis said earlier this year that the UK may have to negotiate financial services access on a country-by-country basis as it could take a long time for the equivalence assessments to be completed.
While many market participants see the opportunities of looking at non-EU centres, they also point to the challenges. “If UK financial services regulation were to align with other major hubs outside of the EU, then global market infrastructure could look very different,” says Chris Hollands, Head of North American and European sales at TradingScreen. “However, it will be in all parties’ within Europe or outside’s interests for London to retain its prominent position in the primary and secondary markets.
He adds, “As ever when big bold claims are made, the devil is very much in the detail. Aligning regulations with financial centres in New York, Tokyo and Hong Kong sounds great in principle, but exactly what this will look like in practice is anyone’s guess right now.
Hollands notes, “Between now and the end of the transition period, market participants will be looking for an open and detailed framework for EU based firms to continue to operate easily in the City. Only when these intricate nuances are agreed can the City gain a true picture of how global capital markets will function post-Brexit.”