One Canada Square, in the heart of the Canary Wharf financial district, seen between the Citibank Building and the HSBC Building on October 14, 2022 in London, United Kingdom.
Mike Kemp | In Pictures | Getty Images
The UK government on Friday announced major financial regulation reforms that it says will overhaul EU laws that are “choking growth”.
The package of 30 measures includes a relaxation of the rule that requires banks to separate their retail banking business from their investment business. This measure – first introduced after the 2008 financial crisis – would not apply to retail-focused banks.
The government also confirmed that it will review rules on the accountability of top financial managers – another post-2008 regulation. The Senior Managers Regime, introduced in 2016, means that individuals in regulated companies face penalties for poor behavior, poor work culture or poor decision-making.
Changes announced in the package, dubbed the Edinburgh Reforms, also include a review of rules on short selling, company listings, insurers’ balance sheets and real estate investment trusts.
Treasury Secretary Jeremy Hunt said he wanted to ensure Britain’s status as “one of the most open, dynamic and competitive financial services hubs in the world”.
“The Edinburgh reforms use our Brexit freedoms to create an agile and homegrown regulatory regime that works in the interests of the British people and our businesses,” he said in a statement.
“And we will go further – by delivering a reform of onerous EU laws that are stifling growth in other sectors such as digital technology and life sciences.”
The government bills the reforms to benefit from the freedoms Brexit offers, saying hundreds of pages of EU financial services law will be replaced or scrapped.
Many argue that Britain’s exit from the EU has damaged the country’s financial competitiveness, with Portal reporting that London has lost billions of euros in day-to-day stock and derivatives trading on EU bourses since leaving the bloc. Researchers at the London School of Economics said earlier this year that financial services will be among the sectors hardest hit by Brexit.
Trying to boost the UK’s sluggish economic growth has also become a priority for the government as the country is forecast to be on the brink of a long recession.
The previously announced lifting of the UK cap on bankers’ bonuses was one of the few measures announced by Hunt’s predecessor, Kwasi Kwarteng, to remain in place after his messy “mini-budget”.
Kwarteng had promised a “Big Bang 2”, referring to the deregulation of the London Stock Exchange in the 1980s, which attracted a host of global banks and investment firms to the UK and rapidly expanded the City of London’s financial sector.
Another proposed reform would result in the regulators’ remit being expanded to include simplifications the competitiveness of the UK economy, particularly the financial services sector.
However, John Vickers, former chairman of the Independent Commission on Banking, warned in a letter to the Financial Times this week that the “special treatment given to the financial services sector … could hurt it, as we all saw 15 years ago.”
Tulip Siddiq, the shadow city minister for the opposition Labor Party, called the proposed reforms a “race to the bottom”.
“Introducing more risk and potentially more financial instability because you can’t control your backbenchers, this Tory government is everywhere,” she said, citing ongoing power struggles within the ruling Conservative Party.
“Reforms like Ring Fencing and the Senior Managers Regime were introduced with good reason. The city doesn’t want flimsy consolation prizes for being sold by the river in the Tories’ Brexit deal, nor any more empty promises of deregulation.”
Kay Swinburne, deputy chairman of KPMG UK’s financial services practice, told CNBC in emailed comments that the reforms were a “step closer to more efficient regulation and not a race to the bottom”.
“While most of these reforms have been pursued previously, they represent a step to future-proof the competitiveness and long-term growth of the UK financial services industry while maintaining standards.”