Senior City of London figures told parliament the UK should have some flexibility to create its own rules after Brexit, but rejected a regulatory “race to the bottom” to create a so-called Singapore-on-Thames.
In evidence to the House of Lords EU Financial Affairs Sub-Committee on Wednesday, insurance and fund management bosses argued that Britain could seek limited divergence from the bloc’s financial services rule book in future.
But they agreed that maintaining broad equivalence with EU and global regulations — to retain market access — should be the government’s negotiating position.
Adrian Montague, chairman of FTSE 100 insurer Aviva, said that seeking to diverge in some areas and promoting competitiveness would not be “inviting a race to the bottom”. He told the committee: “You hear this Singapore-on-Thames analogy — it is not the way forward. We have a rule book. We can optimise the rule book. We cannot tear it up.”
Lloyd’s of London chairman Bruce Carnegie-Brown called for a UK-EU equivalence deal in reinsurance, to ensure that Britain does not lose out. “This is an industry in which the UK enjoys global leadership and to risk cutting off a fair piece of global GDP and access would in the long term, diminish our potential.”
He noted that Switzerland and Bermuda — the second and third largest wholesale reinsurance markets outside London — had negotiated EU equivalence designations and “it would be extraordinary that Bermuda would continue to have access to the EU under equivalence but the UK not”.
Financial services is set to be one of the most contentious issues covered in the EU-UK trade talks, which start next week.
Boris Johnson’s government wants the EU to grant the UK’s financial sector the same level of access they enjoy now through an equivalence regime, which would be based on a unilateral assessment by Brussels that Britain has a similar standard of rules and regulations.
But Mr Johnson wants the EU to go further by granting a more stable, permanent framework for equivalence, reducing the threat of the City losing its access with just 30 days notice.
In a speech on Wednesday, the EU’s chief Brexit negotiator Michel Barnier reiterated that equivalence would “never be global nor permanent”.
“The UK may not want to be a ruletaker, OK, but we do not want to be the risk taker,” Mr Barnier said. “When the next financial crisis strikes, who will foot the bill? I doubt the UK will foot it for the EU. That is why the EU must take the responsibility for [the bloc’s] financial supervision, regulation and financial stability.”
When asked by peer Meghnad Desai if trade deals for the motor and fishing industries should be prioritised, and London freed up to make its own financial services rules, Sir Adrian warned this would bring “substantial extra costs . . . so it is quite definitely sub optimal”.
He told the committee “the question is how far we should be allowed to diverge while remaining equivalent” — and suggested the government might seek different arrangements for different businesses. “For some, like Aviva . . . equivalence will be a convenience but not at the price of being rule taker from the EU,” he said.
UK fund management groups said the key to their post-Brexit future was the ability to delegate portfolio management back to London. Michael Dobson, chairman of Schroders, said the EU would have to let this delegation continue because stopping it for the UK would mean stopping it for the US and Japan too, disrupting the global industry.
Mr Dobson and Douglas Flint, chairman of Standard Life Aberdeen, said they saw scope for the UK to diverge on some EU asset management directives, such as those governing packaged retail and insurance-based investment products, and markets in financial instruments. The so-called Priips regulation, applied since 2018, is designed to help investors better understand and compare key features of investment products, according to the UK regulator, the Financial Conduct Authority.
“Priips . . . I think has not helped . . . it is confusing and hard to represent to clients,” said Mr Dobson.
Sir Douglas also highlighted Priips as well as the Mifid regulations, which have forced asset managers to split the cost of investment research from that of trading securities for the first time.
“I am sure we will end up diverging to make it more proportionate but on fundamentals we are the same,” he said.