The UK government needs to rethink rules governing international financial institutions’ access to its markets post-Brexit to attract business from new markets, according to a new report from an influential group of financial law specialists.
The paper, published by the International Regulatory Strategy Group in partnership with law firm Hogan Lovells, called for UK policymakers to issue new guidance to help overseas firms “understand what services they can provide to UK users of financial services, either with or without authorisation in the UK”.
The government should rethink its approach to equivalence, a regulatory regime that grants market access to non-UK firms deemed to be regulated in a sufficiently similar manner to their own, according to IRSG, which is affiliated to the lobby group TheCityUK and the City of London Corporation.
“The UK should continue to have an equivalence-style regime, but based on the concept of “deference” [to a firm’s home regulator for supervision] rather than an EU-style detailed analysis of equivalence,” the report said.
“Using an approach of mutual deference between the UK regulators and the home country regulators of an overseas firm can allow the UK to avoid imposing conflicting, inconsistent or duplicative requirements on overseas firms who wish to do business in the UK,” it said.
Policymakers should also look to make clearer an exemption contained within its financial rulebook enabling foriegn banks to carry out certain regulated financial activities, such as securities trading, advising on or managing investments, and taking deposits from institutional investors, large businesses and other banks, in the UK without having to get a license to operate in the country.
“The rules… are complex and the report illustrates practical difficulties firms face when interpreting them,” the report said of the so-called overseas persons exclusion, before adding that it should be extended to also apply to investment professionals and high net worth entities.
In addition, the report said the UK rulebook could be updated to enable more firms to establish regulated branches in the UK as opposed to subsidiaries — the latter gives the UK greater oversight of their operations and opens them up to tougher capital requirements and higher costs.
Rachel Kent, the head of financial services regulation at law firm Hogan Lovells, said of the proposed changes: “We will attract more visitors to the UK going forward than we perhaps would have done if we can make our system more user friendly.”
Dr Kay Swinburne, the newly-appointed chair of the IRSG, said that if implemented the proposed changes could help the UK attract business from emerging banking giants in non-traditional markets including India and China.
The IRSG’s recommendations come a week on from the UK’s chancellor of the exchequer’s stipulation at the City’s annual Mansion House event that the UK would push ahead with its own regulatory reforms amid ongoing reluctance from the European Union to offer UK finance firms access to its markets on the basis of equivalence.
“Our ambition has been to reach a comprehensive set of mutual decisions on financial services equivalence. That has not happened,” Sunak told attendees at the event on 1 July. In the absence of such access to EU markets, Sunak said that the UK would pursue financial services reforms “as a sovereign jurisdiction with our own priorities”.
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