Brexit means better, less burdensome regulations
UK finance needs a pragmatic, not dramatic, approach to deregulation post-Brexit, argues Tim Focas
When the head of the UK’s Financial Conduct Authority (FCA) delivers a speech outlining how the UK can develop a “less burdensome” regulatory regime post-Brexit, even the most hard-line of remain supporting City institutions must be encouraged.
A plethora of regulatory directives, many of which have emanated from Brussels, has not only hindered global competitiveness, but also created huge costs for UK financial institutions and investors. Serious consideration of how UK law can be reformed to enhance the Britain’s standing as a leading global financial hub is unquestionably one of the potential benefits of Brexit.
But as ideologically tempting as it may be to axe as much European red tape as possible, a very careful balance needs to be struck. The sheer complexity of European markets means that taking a bonfire approach to existing rules would not be wise. The City provides a deep pool of financial and human capital that helps finance investment and job creation on a pan-European basis. And with the Eurozone teetering on the brink, the continent needs a new generation of entrepreneurs creating companies which boost employment prospects. This requires interconnected and efficient capital markets, which can only happen through an UK/European equivalent rules based regime.
That said, a drive for equivalence certainly does not mean that an outcome-focused approach put forward by the FCA can’t work. While there would be early issues to iron out such as proving to the EU that outcomes has happened, there are longer term benefits. In theory, an outcome based approach means regulations would be less detailed and would allow market participants more freedom of to look for a direct objective, such as acting in the best interest of end investors. A more outcome focused attitude could would allow the UK to enforce regulations, where needed, more quickly than their European counterparts. One of the biggest bugbears of EU measures to date has been how long it has taken for certain rules to be enforced. Being able to act quickly and fairly when issues arise can only be a good thing.
In order to strike this ever so delicate balance, the industry needs to start thinking about how to demonstrate equivalence with EU rules through an outcome based approach. Measurable evidence is drawn up and agreed by all sides. Easier said than done but this is unquestionable where the debate about how European markets are regulated in post-Brexit world needs to shift – sooner rather than later.
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