UK chancellor Jeremy Hunt has launched a major reform of the UK’s financial sector with plans to cut red tape and replace swathes of European Union regulations.
Dubbed the “Edinburgh Reforms”, the 30 measures aim to reinforce London’s position as a global finance centre and take the lead on green and digital finance.
The measures cover areas ranging from unbundling investment research and prospectuses to securitisation, long-term investment funds, short selling, payments and consumer credit.
“The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses,” said Hunt.
The government will also review controversial pieces of UK post-crisis financial legislation such as the senior manager regime that holds senior executives responsible for failings as well as the separation of investment and retail banking.
As part of the ringfencing changes to banking, the Treasury will consult on raising the threshold at which the ring-fencing regime applies to £35 billion of retail deposits, up £10 billion.
“The UK is a financial services superpower — and we have long benefited from, and are committed to, high quality regulatory standards,” said City Minister Andrew Griffith.
This is the second package of reforms to revise the EU financial rulebook after Brexit and follows the publication of the Financial Services and Markets Bill back in July.
U.K. Prime Minister Rishi Sunak has in the past referred to City reforms as a deregulatory “Big Bang” like in the 1980s.
However, Hunt refuted this, noting, “It would be wrong to say this is of the same scale as what Nigel Lawson did in 1986 but I think it is pretty significant and it shows that the UK is being nimble in constantly changing global markets.
The jury is out as to whether the reforms will deliver a sharpened edge. Take innovation. As Rory Doyle, senior financial crime manager at Fenergo, put it, “It is absolutely the right time to put innovation and technology at the forefront of the City’s agenda.
However, much like most things, it’s easier said than done. To be successful in the post-Brexit environment, the government and regulator must consider a cross-border, collaborative approach.
Technology – which often transcends both jurisdictions and traditional financial services frameworks – requires a standardised set of policies. Without this, we will see siloed regulations that vary across jurisdictions, which leaves room for loopholes and confusion.”
Market participants also have issues with unbundling. “The regulations drove asset managers to stop charging their research costs to their pension fund clients, and they can’t go back to them now and say “actually the UK government said it would be good if we could charge this all back to you, is that ok?!,” according to Mike Carrodus, founder and CEO of Substantive Research.
He adds, “his is especially true in a terrible year for investing for most firms. This is all too little, too late.
Carrodus notes that although the original MiFID II saved pension funds millions of pounds in fee, they also hurt competitiveness, as the big global research brokers could charge less and gain market share versus niche, smaller players.
However, “the way to fix that would be to look at the competition situation in research, and how all research firms should be allowed to price their services in order to ensure choice and diversity,” he adds.
Daniel Carpenter, CEO of Meritsoft, a Cognizant company, believes that regardless of how the unbundling reforms pan out, research brokers will need to prepare for more change.
“It is of course hard to say exactly how big the headache will be,” he says. “However, if transparency really means transparency, perhaps they should prepare themselves with more capabilities, enhancing the tracking of research consumption and fully automating their invoicing and tax liabilities”
