Five things shaping Britain’s financial rulebooks after Brexit

By Huw Jones

LONDON (Reuters) – Britain is conducting a review of its financial rulebooks and policies to see how it can keep its 130 billion pound ($184 billion) finance sector competitive after Brexit left it largely cut off from the European Union.

The government is due to issue papers in the coming days outlining its approach to financial technology (fintech) and capital markets, while further down the line it’s expected to propose changes to the funds and insurance sectors.

Here are five things set to shape the City of London financial hub following its loss of access to the EU:

BIG BANG DEBATE

Britain’s finance ministry is reviewing financial regulation and insurance capital rules, with minister Rishi Sunak raising the prospect of a “Big Bang 2.0” to maintain the City’s competitiveness, a reference to liberalisation of trading in the 1980s.

But it’s unclear how far any deregulation could go given that Britain says it won’t undermine global standards.

UK Finance, a banking body, wants a formal remit for regulators to ditch rules that put them at a competitive disadvantage globally. Insurers want cuts in capital requirements to free up cash for green and long term investments.

But the Bank of England says the City must not become an “anything goes” financial centre, and that insurers hold the right amount of capital.

Cross-border firms want to avoid Britain diverging from international norms as this would add to compliance costs.

City veterans say Britain should focus on allowing firms to hire globally, and ensuring that regulators respond nimbly and proportionately to crypto-assets, sustainable finance, long-term investing and restructurings after COVID-19.

COPYING NEW YORK

London has fallen behind New York in attracting company flotations and a government-backed review of listing rules is likely to recommend allowing “dual class” shares and a lower “free float”, perhaps for a limited period.

Dual class shares are stocks in the same company with different voting rights, while “free float” refers to the proportion of a company’s shares that are publicly available.

The potential changes could attract more tech and fintech companies whose founders typically want to retain a large degree of control.

It could also recommend making it easier for special purpose acquisition companies (SPACs) – businesses that raise money on stock markets to buy other companies – an area in which New York has also dominated, with Amsterdam catching up fast.

UK asset managers warn that strong corporate governance standards could be diluted by tinkering with listing rules.

BEYOND SANDBOXES

Britain is home to one of the world’s biggest innovative fintech sectors, its “sandboxes” – which allow fintech firms to test new products on real consumers under regulatory supervision – copied across the world. But Brexit means Britain has to work harder to attract and retain fintechs as they will no longer have direct access to the world’s biggest trading area.

A government-backed review to buttress the sector is due to report back on Friday with recommendations that could include cutting red tape for fintechs that want to recruit staff from across the world, and make listing in Britain more attractive.

Other ideas could include helping fledgling fintech navigate government departments and regulators more easily, along with ways of boosting funding for start-ups.

FUNDS ARE THE FUTURE

Britain is reviewing how to make itself a more competitive place for listing investment funds, a core tool for bringing fresh capital into markets.

UK-based asset managers run many funds listed in the EU, but this global system of cross-border management known as delegation could be tightened up by the bloc.

Having more funds listed in Britain would also mean that the shares they hold would be traded in London. Billions of euros in trading euro shares have left the UK for Amsterdam since Brexit due to the bloc’s restrictions on where funds can trade shares.

THINK GLOBAL

As the City will get only limited access at best to the EU, industry officials say it makes more sense to focus on getting better access to other markets like Singapore, Hong Kong, Japan and the United States, while at the same time keeping the UK financial market open to the world, including the EU.

Negotiations between Britain and Switzerland for a “mutual recognition” deal in financial rules is the way to go, industry officials say. Better global access would also keep the City ahead of EU centres like Amsterdam, Paris and Frankfurt.

($1 = 0.7056 pounds)

(Reporting by Huw Jones. Editing by Mark Potter)