Since the UK finally left the EU at the end of 2020, there has been an almost universal focus on the problems created by the Northern Ireland Protocol, as well as the abandonment of UK fishing communities. However, despite being this country’s single biggest export to both the EU and the rest of the world, the financial services industry has seemingly been entirely ignored.
In the last month Rishi Sunak, Lord Frost, and Andrew Bailey, the Governor of the Bank of England, have all confirmed a deal on financial services equivalence with the EU somehow appears to be dead in the water.
The EU’s justification for the lack of progress is the UK’s refusal to commit to “dynamic alignment with EU regulatory changes” for years to come. Why should we accept these demands when this is not a requisite which the EU has forced on any other countries they have equivalence deals with – for example the USA, China and Singapore – so why single out the UK?
Despite this clear pattern of unreasonable rejection, the UK Government has been unwilling to take any real action to move beyond this stalemate, leaving businesses and investors unable to properly plan for our future.
Yes, the Chancellor tried to get the ball rolling this month with his speech at Mansion House, announcing the world’s first Green Bond (a fixed-income instrument designed to support specific climate-related or environmental projects) ahead of the ahead of the COP26 Climate Conference, scheduled to be held in Glasgow from October 31 – November 12 this year.
Unfortunately, the Chancellor’s detail was limited, with interest rates for the bonds not announced and a greater focus on making sure businesses report the impact they have on the environment. While this is a good start, it barely scratches the surface of the possibilities available to the UK and the Chancellor does not seem to be making any substantial attempts to change the regulations enforced on us by the EU.
Thankfully, because the City of London is such a significant player on the world stage, the stalemate and lack of cooperation from the EU is never going to end the dominance which the UK has enjoyed for so long. To use the mainstream media’s favourite term, “Despite Brexit…”, London is still the top financial services hub in Europe and has even reclaimed the top spot for European share trading which was held by Amsterdam for a short time recently – in spite of the EU attempting to block London-based firms doing business in the EU.
In other words, even though some additional barriers have been created, companies and individuals still want to choose the expertise and experience which exists in London, rather than move to the EU – contrary to what many had claimed.
So, with the UK’s advantages over the EU being so clear, why do we seem stuck in the mud when it comes to implementing the advantages of Brexit? Right now the Government appears to be unwilling to diverge from the EU, seemingly for no other reason than “not rocking the boat” and “upsetting the EU” while we negotiate other areas of concern – primarily Northern Ireland, as the Government announced last week with their ambitious call for a total renegotiation of the NI Protocol.
This tip-toeing over glass on these issues simply cannot continue. Yes, London has maintained its position in the world, but if the Government wants to reach the full potential of Brexit, then this must mean bringing about serious change and not simply accepting the status quo. Nobody stays at the top by doing nothing. As an independent country, we cannot deprive ourselves of opportunities to thrive because it might annoy the European Union.
Quite frankly, anyone who makes this argument for the Government’s lack of action has not been paying attention. We currently seem to be sitting idly by, wasting time by continuing to abide by EU legislation, and in return the EU is not showing us any leniency or “goodwill”. Instead, it is trying to carve off Northern Ireland from this country – recently rejecting our proposals for renegotiation in just three hours; hitting us with multiple legal threats; and now it is demanding an extra £2 billion as part of a “Divorce Bill” (which was only agreed because of the UK’s desire to show goodwill).
The EU clearly has no interest in “playing nicely”, so it is about time we stopped the charades and got on with putting out own interests first – whether that be triggering Article 16 of the NI Protocol or slashing EU financial services regulation.
Companies have flocked to the UK for decades because of their trust in our economic system and the “light-touch” regulation which drives it. This has been diluted through our EU Membership, but it is something we can recover from.
There are swathes of EU regulations governing financial services and investment which we actually opposed at the time of their creation – such as the Solvency 2 laws on investment risks; and the Alternative Investment Fund Managers Directive – both of these create swathes of bureaucracy which stymie innovation and try to remove any chance of businesses taking risks – risks which help drive an economy forward at a higher rate and create more competition.
No, this doesn’t mean financial services should be an industry devoid of scrutiny or regulation. This is about shaping a system which encourages new businesses and is prepared for the future, rather than being stuck in the past, tied to a sclerotic EU legislative process which lags behind the rest of the world.
The UK has the chance to cement itself “as the most advanced and exciting country for financial services in the world”, as Sunak described at Mansion House. However, the Government must have the courage to reach out, grab this chance and bring about real regulatory change quickly. Whether this is by encouraging FinTech, green investment or digital trade, our exit from the European Union has come at an opportune time when fresh thinking and a new regulatory approach can allow the United Kingdom to reach its full economic potential.
It is clear a “good deal” with the EU is not on the cards anytime soon, so the Chancellor must not lose this opportunity to push forward and really Get Britain Out of the mindset where we worry about how our every move might affect the relationship we already have with the EU. We are now an independent sovereign nation, and it is time this Government started acting like we want to forge ahead to really explore the advantages of a truly Global Britain.