Regulation of the City is about to get laxer. Who could have predicted that?
I notice that UK Chancellor Rishi Sunak spoke today about the City at the Mansion House. After years of trying to reach a post-Brexit accord with the EU on financial services, he has given up.
“As I said in parliament in November, our ambition has been to reach a comprehensive set of mutual decisions on financial services equivalence.
That has not happened. Now we are moving forward. Continuing to cooperate on questions of global finances, but each as a sovereign jurisdiction with our own priorities.
We now have the freedom to do things differently and better, and we intend to use it fully.”
What will it mean? According to the (usually well connected ) Daily Telegraph:
“The Treasury is understood to be keen for a wide-ranging liberalisation of European Union-era finance rules, with plans to rein in reporting requirements for fund managers and other companies captured by strict Brussels regulations known as Mifid II.”
Who could have predicted that? Well, here’s a passage from an article published exactly five years ago yesterday, called ‘Reverse Cuba? The City post Brexit’.
“What’s more interesting is what happens if the negotiations result in a loss of the passport – an outcome that, even if it does happen, may only happen years into the future … how would the UK adjust? The key, I think, is regulation.
There is no doubt that, in part, the shape of country’s banking regulation is not just about the safety of the financial system – it is also about attracting business and the tax receipts that go with it. As one expert commentator put it about the UK’s decision in the late 1990s to move towards a ‘light touch’, principles-based regulatory regime (‘PBR’):
‘Beyond the official rhetoric, there is also a clear subtext to much of the political debate. In the US–UK context, and to an extent in the EU–UK context, PBR is intimately embroiled in a competition between regulators (and their governments) for business. There is no doubt that, at least at the rhetorical level, PBR is a weapon in the fierce battle for business between London and New York.’
With tens of billions of sterling in tax revenues at stake for the UK (around 10% of all government income), my guess is that regulatory competition would come roaring back into fashion, especially if a ‘market friendly’ Conservative government was in power. Expect the current EU-created limitations on pay to be torn up; deals to be cut to attract hedge funds; EU rulebooks like MIFID to disappear. In this world, London would likely become a deregulated floating offshore challenge to the EU: a buccaneering centre of the more fringe aspects of modern finance. It would stand as a sort of European ‘reverse Cuba’ separated from the mainland not by the Florida Straights but by the English Channel. To put it mildly, this unintended consequence of the referendum may not be one that many who voted Leave would necessarily welcome.”
And who was the author of this Nostradamus-like prophecy? I blush to admit it was me.
Well they say even a stopped clock is right twice a day.