It was billed as a package to revitalise the capital markets, opening up access for start-ups and high-growth companies in particular.
The plan included digitisation, reduced bureaucracy and a more international outlook. It envisaged enabling new forms of capital raising through special purpose acquisition companies, and permitting the use of the dual-class share structures beloved of entrepreneurial founders.
Yes, that’s right. Germany has pretty big ideas for making its markets more attractive and competitive on the world stage. If it all sounds desperately familiar, that’s because it is. “Berlin reads English and Lord Hill’s document was not difficult to understand” was the verdict of one European academic, referring to last year’s UK review which proposed similar ideas for rejuvenating London’s capital markets.
It isn’t a one-off. As the UK government doubles down on the idea that diverging from Brussels rules can benefit the City — with even Labour leader Keir Starmer making similar comments this month — the changes under way in the EU and Britain to date have felt surprisingly similar.
Both are updating Solvency II insurance rules with the aim of making the system work better and freeing up capital for long-term investment. The UK plans to limit when companies must produce a lengthy prospectus document when raising money. The EU’s listings consultation earlier this year proposed the same, as well as aping other moves.
“The UK has been tidying up its rules in important ways that will improve access to the capital markets,” says an executive at one firm. “But it’s hard to see that as a Brexit dividend if the EU can copy-paste and say ‘we’ll take this and that’.”
There are good reasons why divergence between the pair may be limited. Both start from the same gargantuan rule book. The UK, much as it moaned and groaned about the process, steered the EU’s approach and wrote much of the detail. The UK is committed to sticking with international standards, like the Basel rules on banking regulation.
Then there is the fact that the clear preference of the UK financial services industry was to stay aligned with Europe. True, that thinking had to change slightly as it became clear that the sector’s hopes for shared regulation and the market access that came with it counted for nothing in the political wrangling over Brexit.
But the basic point remains. “The overwhelming fear is that the desire to find post-Brexit opportunities will result in change for the sake of change, which is just dead cost,” says Simon Gleeson, partner at Clifford Chance. Even as the regulatory shadowboxing continues, the rule books will drift apart in a costly manner.
In fairness, it is still early days. The government is just this week publishing a financial services bill that will set the framework for a regulatory approach that keeps political direction broad brush and hands responsibility for the details to regulators.
But the progress so far suggests there aren’t quick and easy ways to secure a lasting competitive advantage over other markets. That calls into question the unwelcome push for regulators to have a mandate to pursue “competitiveness” in their work. The concern that cautious watchdogs will stymie the fabulous opportunities on offer has prompted the problematic idea of a power for ministers to “call in” regulators’ decisions.
The bottom line is that if there is a strategic vision for how Brexit freedoms can bolster the financial services industry and the City’s place on the world stage, it hasn’t yet been elucidated by the government, or indeed anyone else.
It will have to be more than tinkering in parallel with the Europeans. At a recent City dinner that discussed dwindling allocations to UK equities and the lack of homegrown global companies, the reforms to date barely got a mention. Instead, the focus was on cultural attitudes to equity ownership and risk-taking, and on the underlying structure of savings, pensions and investment.
Chancellor Nadhim Zahawi pledged this week to make the UK “the most open, inclusive, welcoming, competitive, safe and transparent place to do financial services business in the world”. But the vision of an internationally facing City has never adequately answered the question of what additional business is being won, or from where. In any case, despairing City advisers report getting mixed messages about whether allowing overseas firms to operate from London without the full plethora of authorisations, licences and rules will ever really fly — with regulators or politicians.
Anything straying near consumer protection understandably raises hackles. There have even been suggestions of tit-for-tat measures against an EU that is erecting barriers around the single market and trying to lever more activity into the bloc. “When it comes to opportunities from Brexit, I’m not sure anyone anywhere on the political spectrum has a clear idea in their mind what that means,” says Gleeson.
One consolation, such as it is, may be that the EU’s progress on its priorities in financial services has been equally halting. Its rule-tweaking belies the fact that momentum on creating properly integrated financial services or capital markets has waned and the project still faces huge political hurdles. In this sense, the EU and UK remain divided by politics but united by strategic drift.
helen.thomas@ft.com
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