The UK will no longer have a direct influence over the
EU27, but it can and should improve its own regulations and work
with other financial centres and international standard setters
to create a more competitive regulatory environment across the
world.
In a new IEA report, authors Shanker Singham and
Catherine McBride look at what the UK can do in the context of
Brexit that would not only improve the UK’s financial service
industry, but also improve global financial services and the
availability of capital, hedging mechanisms and insurance
internationally.
The UK must capitalise on its natural advantages of size, skill,
creativity, language, law, time zone and new-found flexibility
and responsiveness to retain its dominant market position.
Financial services regulations must:
• Not restrict growth in financial services
• Not encourage regulatory arbitrage
• Not prevent sections of the economy from
accessing capital or other financial products
• Help to develop safe but competitive
markets
• Facilitate the growth of new and small
businesses.
Proposals:
Develop a strong domestic regime in line with global
standards and best practices. The UK should reshape its
own regime by removing any unnecessary processes and focusing
instead on proportionality of the regulatory outcomes in a
transparent and cooperative manner.
Pursue WTO disciplines with renewed
urgency. The WTO understanding on financial
services should be developed with the goal of liberalisation of
market access. The WTO Most Favoured Nation (MFN) principle of
non-discrimination should be at the core of any agreement on
international financial services.
Form an alliance with other major financial markets, such
as Switzerland, Hong Kong and Singapore to enable
further and deeper integration opportunities. A UK regime of
multilateral mutual recognition (MMR) would allow the UK to
strengthen its involvement in global regulation formation and
dispute resolution.
Form an alliance with UK-linked international financial
centres. The UK should make comprehensive bilateral
agreements based on mutual recognition with the Crown
Dependencies and the Overseas Territories that have established
adequate regulatory standards in key financial service sectors
such as banking, asset management, insurance and reinsurance.
Introduce regulation to encourage innovation.
Domestic SMEs and fintech companies should have proportionate
regimes of regulation and taxation to ensure good conditions for
new entrants and dynamic high growth firms.
Establish regulatory coherence agreement between the UK
and the EU27. Such cooperation should include
shared cost benefit analyses in regulatory promulgation with
regard to a range of factors, including impacts on trade and
competition.
Allow EU27 headquartered banks with UK branches to
continue post-Brexit provided that their home
regulators continue to cooperate with the UK authorities, and
expedite conversion from branches to subsidiaries if desired.
This provides certainty for EU banks trading in the UK, ensures
market stability and would be a show of good faith that the UK
will not restrict EU27 access to financial services.
Commenting on the report, Shanker Singham, Director of
the International Trade and Competition Unit at the Institute of
Economic Affairs, said:
“Now is the time for the UK to promote more competitive
regulation in global standard setting organisations and to
challenge global rules with anticompetitive effects. Financial
regulation is already based on international standards in many
key areas. Outside the EU, the UK will have the advantage of
greater agility in decision making, entering into regulatory
recognition arrangements with third countries and implementing
appropriate regulations. If these tracks are initiated, the
future for UK financial services should be very
bright.”
