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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.
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.”
Notes to editors:
For media enquiries please contact Stephanie Lis, Director of Communications: [email protected] or 0207 799 8909 or 07766 221 268
To download a copy of ‘Improving Global Financial Services Regulation’, please click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
Further IEA Reading: The IEA Brexit Prize: A Blueprint for Britain – Openness not Isolation ; Brexit Prize: Final shortlisted entries