Last week, in an interview with Bloomberg, Economic Secretary to the Treasury John Glen told reporters that the United Kingdom is preparing to socialize "detailed proposals for wider reform to the capital markets" in order to "maintain the competitiveness of London [...] as a global hub for financial services."
The comments by Mr. Glen mirror those recently made by Mr. Andrew Bailey, governor of the Bank of England. He recently advocated against a "regional argument," noting that "an open world economy supported by an open financial system that respects the public interest objective of financial stability will bring the greatest benefits all round."
We expect that any UK-initiated post-Brexit review will be carried out in a manner consistent with these philosophies. We also expect the exercise will be wide-reaching and cover a number of capital markets topics, ranging from capital formation to the trading of financial instruments, as well as commodities and derivatives.
A comprehensive regulatory review does not necessarily mean regulatory rollback. As Mr. Glen noted, "revolutionary deregulation...doesn't enhance the integrity of the reputation of the City." He made clear that the UK is not "seeking to derive economic gains from deregulation."
Regardless of the scope and type of policy initiatives that are born out of this review, changes will not necessarily come quickly. Any prospective changes will need to be done in concert with UK legislators and would also need to be balanced against potential disruption with the European Union, where European Commission equivalence determinations are critical to financial services activities between the UK and the EU.
According to other reports, the overhaul will "largely target MiFID II," the post-financial crisis regulations that correspond to the Dodd-Frank Act laws in the United States. The undertaking will also seek to provide the UK Financial Conduct Authority with broader authority to adopt future rules without specific parliamentary legislation, an arrangement more common in the US with the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Financial market participants around the world should monitor these developments closely, as the UK's actions could have global ramifications, particularly with a global economy still recovering from the 2008 financial crisis and the more recent effects of a global health pandemic. Further, interested parties should begin to prepare their own policy priorities in order to provide meaningful input into the process.
Originally published March 17, 2021
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