Wed. Oct 20th, 2021

London fights for future updates

A wave of British government reforms aimed at making the city of London more attractive after Brexit already had an unintended consequence: executives in the finance industry are canceling summer holidays to deal with the work.

The large number of consultations meant there was no time for a break in August, a police specialist at a major UK asset manager said. “It’s overwhelming at the moment.”

For British politicians who want to benefit from newfound freedoms and escape from what they see as inappropriate rules prescribed by Brussels, the reforms are essential to ensure that London remains competitive as a leading financial hub.

But many large asset managers are skeptical of the rhetoric to cut trunk, not least because they operate worldwide and want rules that enable them to access markets with the least cost.

“We do not see it as a competition between the UK and the EU,” said Sheila Nicoll, head of public policy at Schroders, London’s largest listed asset manager. ‘There are opportunities and needs for the whole market to grow, so the two sides of the channel are not competing for business. We compete to grow the total pot. ”

Yet more than 70 per cent of those working in the UK asset management industry believe that the city’s competitiveness has deteriorated since the 2016 referendum, and research by New Financial, a brainstorm, found this year that insurance companies and asset managers have transferred more as £ 100 billion in British assets and funds to the EU in response to Brexit.

Bar graph of the number of companies responding to the exit of the UK (by sector) showing that asset managers respond most to Brexit

After months of informal consultation with the industry, the British government has now published hundreds of pages of proposed reforms. These include the overhaul of the UK’s listing regime, changes to the EU – wide Mifid II financial market rules, the Solvency II insurance regulations and the PRIIPS rules on how investment products are marketed to consumers.

In addition, asset managers are struggling with changes in prospectus regulation, the possible launch of a fund which can invest in long-term assets, various pension reforms, the Ron Kalifa overview of the UK’s attractiveness for fintech businesses and possible sustainability rules.

“There are a lot of things going on at the same time,” says Rupert Krefting, head of corporate finance at M&G Investments. “It is good that the government is thinking about how to make London more competitive. We want London to succeed, especially after Brexit. But that’s just to think about all the unintended consequences of all these actions. ”

While the government wants the idea that Brexit should manage the regulatory overhaul, Nicoll points out that some of these assessments would take place anyway.

Few in the city expected significant changes to the rules, especially since Britain was a driving force behind many of the original rules. ‘The UK really helped shape financial services regulation [in the EU]. The fingerprints of British expertise are everywhere in Mifid II, ”said one policy expert at a global asset manager.

But almost eight months after the UK left the EU internal market, many fund managers are coming to the idea that the time is right to check a few rules.

Kay Swinburne, KPMG’s Vice President of Financial Services and a former MP who was one of the architects of Mifid II, said: ‘There has been a sea change in the way they have been talking about this for the past 12 months. The realization has diminished that EU regulations are not meant to be static. ”

Asset managers are closely monitoring EU compliance with Mifid II review

A formal revision of the key Mifid II rules for 2018, designed to promote investor protection and place transparency in EU markets, was written down in the original rules.

The UK has already shown its hand and proposed to lift rules for trading stocks in dark pools and raising standards for large positions in commodities. The reporting requirements for mortgage trading also need to be rewritten. Asset managers will be watching closely to see if the EU follows its example, especially as dark pools and boundaries for positions have caused controversy in the past.

Kay Swinburne at KPMG said many asset managers believe that “traders and others will have a greater influence” on the rules. But she added that regulators are looking for asset managers to give their opinion. ‘They want the market to be efficient not only for financial intermediaries but also for investors. They want the market to be attractive to asset managers to do their business. ”

Andrew Ninian, director of stewardship and corporate governance at the Investment Association, the trading body, said there was a growing acceptance that Brexit offered a ‘good opportunity to take a step back and ask what’s right for us now. ‘.

Nicoll said: ‘Before Brexit, time had to be taken to persuade the other 27 countries, or to spend time responding to others. In the UK, we all now have time to think a little more about the blue sky. ”

Yet, after a decade of heavy regulation, many of the planned changes in the UK are relatively small and technical, suggesting that the government has heeded the city’s calls to avoid radical deregulation. This option could have excluded them from the EU and other markets, with authorities fearing it could weaken global standards.

“It’s very devilish in detail about how much one wants to differ,” said John Godfrey, director of corporate affairs at Legal & General. “But there are some opportunities for divergence, such as on Solvency II.”

Other asset managers fear that the UK will continue with various reforms without thinking about what it will be like.

Krefting points out that the listing review executed by Lord Jonathan Hill, aims to make it easier for businesses to list in London, but at the same time the UK wants to introduce audit reforms that create ‘more bureaucracy for listed companies’.

Chart showing IPOs by stock exchanges in London, EU and Amsterdam

Ninian said “more work needs to be done to join the dots” between various regulatory reforms. ‘We need to make sure all of these reviews are consistent and consistent and point in the right direction.

While some policy experts working in the city had to give up their summer vacation, not everyone is convinced that much will change after the regulatory review.

“We are talking about changing things around the edges rather than revising them completely,” said a policy specialist at an international asset manager.

Hill’s listing review experiences some opposition

While asset managers want to make the UK more competitive, some are opposition aspects of Lord Jonathan Hill’s UK listing review. For example, there are concerns about the introduction of double-class stocks for premium listings and possible conflicts with planned audit reforms.

“It’s important that we get the right companies to list in the UK,” said Andrew Ninian at the Investment Association. “But [the focus] must be wider. Just give them a list? Or do they work and contribute to the broader economy. ”

In addition, Hill’s recommendations largely do not seek to repeal or change EU rules. Sheila Nicoll at Schroders said that very simply brings London in line with the rest of the world. ‘Our point of departure is that we should list the UK as an attractive place. “There is a balance between the application of very high standards and the deterrence of people,” she said.

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