A wave of reforms from the UK government designed to make the City of London more attractive after Brexit has already had one unintended consequence: financial sector executives are canceling summer vacations to deal with the workload.
Due to the sheer volume of consultations, there was no time for a break in August, said a policy specialist at a major British asset manager. “It’s overwhelming right now.”
For British politicians eager to take advantage of newfound freedoms and escape what they see as ill-fitting rules dictated by Brussels, the reforms are vital to ensure London remains competitive as a leading financial centre.
But many large asset managers are skeptical of the rhetoric about cutting bureaucracy, not least because they operate globally and want rules that allow them to continue accessing markets at the lowest cost.
“We don’t see it as a competition between the UK and the EU,” said Sheila Nicoll, head of public policy at Schroders, London’s largest publicly traded asset manager. “There are opportunities and needs for the whole market to grow, so the two sides of the Channel are not competing for business. We compete together to grow the total pot.”
Still, more than 70 percent of those working in the UK’s wealth management sector believe the city’s competitiveness has deteriorated since the 2016 referendum, and research by New Financial, a think tank, found this year that insurance companies and asset managers have more transferred over £100 billion in assets and funds from Britain to the EU in response to Brexit.
After months of informal consultations with industry, the UK government has now published hundreds of pages of proposed reforms. These include a review of the UK listing regime, changes to the EU-wide Mifid II rules for financial markets, the Solvency II insurance rules and the PRIIPS rules on how investment products are sold to consumers.
In addition, asset managers are grappling with regulatory changes for prospectuses, the possible introduction of a fund that can invest in long-term assets, various pension reforms, the Ron Kalifa review on making the UK more attractive to fintech companies and possible sustainability regulations.
“There are so many things happening at the same time,” said Rupert Krefting, Head of Corporate Finance at M&G Investments. “It’s good that the government is thinking about how we can make London more competitive. We want London to succeed, especially after Brexit. But it’s just thinking about all the unforeseen consequences of all these actions.”
While the government has made every effort to convey the idea that Brexit is the driving force behind the regulatory review, Nicoll points out that some of these reviews would happen anyway.
Few in the city expected significant rule changes, not least because Britain was a driving force behind many of the original rules. “The UK has really helped shape financial services regulation [in the EU]. The fingerprints of British expertise are everywhere in Mifid II,” said a policy expert at a global asset manager.
But nearly eight months after the UK left the EU’s single market, many fund managers are starting to think the time has come to rethink some of the rules.
Kay Swinburne, KPMG’s Vice-President for Financial Services and a former MEP who was one of the architects of Mifid II, said: “There has been a sea change in the way they talk about this in the last 12 months. disappeared that the EU regulations are not intended to be static.”
Asset managers keep a close eye on whether EU Mifid II review follows
A formal revision of the groundbreaking 2018 Mifid II rules, aimed at promoting investor protection and bringing transparency to EU markets, was included in the original rules.
The UK has already shown its hand, proposing to repeal the rules around stock trading in dark pools and review the standards for holding large positions in commodities. The reporting requirements for bond trading will also be rewritten. Asset managers will be watching closely to see if the EU follows suit, especially as dark pools and limits on commodities holdings have sparked controversy in the past.
Kay Swinburne of KPMG said many asset managers believed that “dealers and others will have more influence” on the rules. But she added that regulators are looking for asset managers to voice their opinion. “They want the market to be efficient, not only for financial intermediaries, but also for the investors. They want the market to be attractive for asset managers to do their business.”
Andrew Ninian, director for stewardship and corporate governance at the Investment Association, the trade association, said there was growing acceptance that Brexit was a “good opportunity for us to step back and ask what’s right for us now.” “.
Nicoll said: “Prior to Brexit, time had to be taken to convince the other 27 countries, or time to respond to others. Within the UK we all now have time to do some more blue-sky thinking.”
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Nevertheless, after a decade of strict regulation, many of the UK’s planned changes are relatively minor and technical, suggesting that the government has heeded the city’s calls to avoid radical deregulation. That option could have shut them out of the EU and other markets, while authorities feared it would weaken global standards.
“It’s a diabolical detail about how much you’d want to deviate,” said John Godfrey, director of corporate affairs at Legal & General. “But there are some opportunities for divergence, like on Solvency II.”
Other asset managers fear the UK is pushing through several reforms without thinking about how they will plug in.
Krefting points out that Lord Jonathan Hill’s review of listing aims to make it easier for companies to list in London, but at the same time the UK wants to introduce audit reforms that “create more bureaucracy for listed companies”.
Ninian said there was “more work to be done to dot the i’s and cross the t’s” between several regulatory reforms. “We need to make sure that all these assessments align and are consistent and point in the right direction.”
While some policy experts working in the city have had to give up their summer holidays, not everyone is convinced that much will change after the regulatory revisions.
“We’re talking about changing things around the edges rather than completely overhauling things,” says a policy specialist at an international asset manager.
The review of Hill’s offers meets with some resistance
While asset managers want to make the UK more competitive, some oppose aspects of Lord Jonathan Hill’s assessment of UK quotes. For example, there are concerns about the introduction of dual-class stocks for premium listings and potential clashes with planned audit reforms.
“It’s important that we get the right companies on the list in the UK,” said Andrew Ninian of the Investment Association. “But [the focus] should be wider. Are they just on the list? Or are they active and contributing to the broader economy.”
In addition, Hill’s recommendations are largely not intended to repeal or change EU rules. Schroders’ Sheila Nicoll said many are simply aligning London with the rest of the world. “Our premise is that we should keep the UK as an attractive place to be on the list. There is a balance between applying very high standards and actually scaring people off,” she said.