City minister sets out post-Brexit reform of financial services

Andrew Griffith, the City minister, has pledged that the “Edinburgh” package of post-Brexit reforms for the financial services industry will make the sector “as internationally competitive as possible”.

On Friday, chancellor Jeremy Hunt will launch wide-ranging consultations on rules for financial services in order to discard EU standards and make the City more competitive against global rivals.

The reforms, at first dubbed Big Bang 2.0 by ministers, range from loosening insurance rules under the Solvency II regime, freeing some retail banks from ringfencing their operations, and loosening EU-imposed Mifid 2 curbs on analyst research that restricted coverage of companies and deterred investors.

In an interview with the Financial Times before the announcement, Griffith said the proposed changes would allow the UK to “hold or take advantage of new opportunities, new innovations, new ways of making markets more liquid and effective”.

He promised that the reforms would be the “first out of the block taking advantage of Brexit freedoms”. Other sectors, such as life sciences, will follow.

Griffith highlighted some of the proposals in the 30-point reform plan. They include “retiring” packaged retail investment and insurance products (PRIIPS), consulting on a new central bank digital currency using blockchain technology, and exploring how to accelerate settlement of trades in London so as compete with faster US rivals.

Griffith said the government would launch a consultation of the 2016 senior managers regime but added this would not abandon having “some sort of fit-and-proper person regime” to ensure those in positions of power were accountable and capable.

Other areas include a new green finance strategy and plans to give the Financial Conduct Authority power to oversee ratings on environmental, society and governance.

New UK long-term asset funds — an open-ended structure that enables investment in illiquid assets — will also be launched.

Griffith said much of the work would be delivered in 2023, setting a timetable far more rapid than is possible in the EU, where rule changes usually take years to agree and implement.

Griffith said the UK was “blessed with high-quality regulators” but that “it was right that we lay down the framework and if the framework says that we want to pursue growth and have internationally competitive financial markets, then that’s perfectly right”.

He added: “It’s not for ministers to make those operational judgments for them. They make those each and every day.”

The UK’s post-Brexit approach to rulemaking gives regulators more direct power than they had under the EU regime, where highly detailed regulations are agreed at political level.

Regulators have promised to be more “agile” and responsive to the needs of industry and to evolving market dynamics. Finance executives and lobbyists say such a change could have more impact than individual rule tweaks.

On bank ringfencing, Griffith said the government would implement a previous review of the system that would “not abandon ringfencing [but] is looking in the longer term at how [it] sits alongside the resolution regime . . . it talks about, for example, taking some of the retail-only banks out”. 

Ringfencing was designed to insulate the retail arms of banks from losses in their riskier trading businesses. However, the existing regulations also apply to banks such as Santander, TSB and Virgin Money, which are overwhelmingly engaged in retail banking.

City executives have long called on the government to avoid a “bonfire of red tape”, once touted as a benefit of Brexit. Global financial firms flock to London for the high standards in governance demanded by their home regulators.

Griffith stressed the need to maintain high standards of regulation: “If you look at the package of measures that we’re looking at, it is not a wholesale abandonment or retirement of the rule book at all.”

He added: “We will always compete on the basis of the highest-quality regulation in alignment with international standards.”