Explainer: How Britain Is Exploiting Brexit To Reform Finance?

Explainer: How Britain Is Exploiting Brexit To Reform Finance?

FILE PHOTO: A small toy figure can be seen in front of the Brexit logo in this photo illustration © Thomson Reuters FILE PHOTO: A minifigure in front of the Brexit logo in this image

By Hugh Jones

LONDON (Reuters) – Britain on Friday proposed more than 30 reforms to boost the City of London's role as a global financial hub, now outside the European Union and competition from Amsterdam, Paris and Frankfurt, as well as New York and Singapore is exposed . . .

Is this the BIG BANG 2.0?

Not quite, but it does represent a swing of the regulatory pendulum, from years of increasing capital requirements for banks and tightening consumer protections, to considering the changes needed to make rules work better for post-Brexit Britain.

Originally dubbed Big Bang 2.0 on the same scale as the far-reaching share dealing reforms of the 1980s, the changes have now been dubbed the 'Edinburgh Reforms' by the city after they were officially announced by Chancellor of the Exchequer Jeremy Hunt.

The government has softened its rhetoric, insisting there will be no "race to the bottom", significant deviations from international standards or the lifting of investor protections, but rather that regulators should help fund the sector's international competitiveness.

Hunt said it would be a mistake to call the reforms a big deal given the need to avoid "unlearned" lessons from the 2008 global financial crisis and emphasize regulator independence.

“The city does not want the restrictions to be lifted. Today's announcement is an indication of evolution, not revolution,” said Alasdair Heinz, CEO of the Aquis Stock Exchange.

What is a ring fence?

The UK has announced an easing of capital rules for insurers and is now turning its attention to banks.

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Since January 2019, banks have had to relax their deposit insurance with a capital buffer to protect them from thriving in their riskier businesses.

Banks complain that rules that are too strict prevent smaller banks from competing with larger lenders in the mortgage market. The government said it would follow the commissioned review's recommendations and change the rules.

The Government will consider exempting banks with no significant investment activity from the rules in mid-2023 and raising the threshold for deposits leading to compliance with the dueling rules from £25bn to £35bn.

Are the bankers now?

He didn't return to the "light touch" before the financial crisis.

The government previously said it would lift EU restrictions on bank bonuses, although other restrictions on bonus withdrawals are expected to remain in place.

Britain introduced rules in 2016 to hold top bankers directly accountable for decisions they made in 2018 after several people were found guilty of the wrongdoing that led to the global financial crisis when taxpayers bailed out creditors.

It was feared as a means of publicly shaming bankers by "hanging their heads", but so far there have been few investigations or executions. Bankers said it's also taking a long time for regulators to approve executive appointments.

The government will review this accreditation system and its leaders in the first quarter of 2023, without specifying the scope of the changes.

What about the market?

There will be a number of revisions as London tries to catch up with New York on the list.

Topics covered include the rules for short selling or betting that the stock price will fall. The government is proposing to permanently remove the EU-era interpretative “PRIIPs” documents offered to investors and replace them with an alternative framework.

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There will be an industry task force looking into halving the time it takes to complete a stock trade from two business days to one business day, a move already planned in the US.

The rules for the prospectus that the company offers to investors will be revised when it is published, along with the reform of the securitization rules.

The government has promised to enact "consolidation bands" rules by 2024 to ensure market prices for investors see the best deals on trading platforms.

The government will work on the audit's recommendations to improve the way listed companies attract investors for new financing.

There will be an overhaul of EU rules requiring brokers to calculate the cost of finding securities and executing securities orders, known as 'cutting', a rule the EU has partially reversed. There will also be evidence that wholesale marketplaces operate at times to improve companies' access to capital before going public.

What about green finance?

The government will discuss subjecting ESG rating providers to the regulatory network.

Investors often use ratings to select companies that offer "green" credentials but are unregulated. The FCA said it will promote regulation focused on transparency, good governance, management of conflicts of interest and strong systems and controls.

Will there be British coins?

Prime Minister Rishi Sunak, as finance minister, called for "Britcoin" or the digital pound to speed up payments.

The government is set to consult with the Bank of England on a retail digital pound in the coming weeks.

(Reporting by Hugh Jones; Editing by Eileen Hardcastle)

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Coordinating the fight against financial crime

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