Concern over focus on competition in finance sector
A PROPOSED relaxation in post-Brexit rules for Britain’s ‘City’ finance sector could spark a race to the bottom in standards, top economic experts warned on Monday (16).
Almost 60 prominent figures expressed concern in an open letter to British finance minister Rishi Sunak over UK plans to promote “competitiveness” in the financial services industry. Britain wants reforms which help offer cheaper financial services and slash red tape, after the nation’s departure from the European Union at the start of 2021.
Monday’s letter, signed by Nobel economics prize laureate Joseph Stiglitz and former Greek finance minister Yanis Varoufakis, welcomed the overall aim to boost economic growth – but slammed the focus on competition. “We wholeheartedly support the government’s aim to stimulate longterm UK economic growth, including through financial regulation,” the letter read. “Yet we believe that competitiveness is an inappropriate objective for regulators.”
The letter warned this focus was “a recipe for excessive risk-taking” of the kind that sparked the notorious 2007/2008 global financial crisis.
“After the last global financial crisis, which cost the world economy some $10 trillion (£8tn), it was accepted that a focus on competitiveness by the then Financial Services Authority (FSA) had helped cause the disaster,” they warned.
The FSA was subsequently axed in 2013 and replaced with the Prudential Regulation Authority, which is part of the Bank of England and regulates lenders, and the Financial Conduct Authority watchdog.
Britain had revealed plans last week to introduce laws that will seek to “maintain and enhance the UK’s position as a global leader in financial services having left the European Union”.
Monday’s open letter conceded that this might have beneficial effects of reducing fees and providing higher-quality products and services.
However, the signatories also warned that the relaxation could have a “harmful” impact that could water down money-laundering regulations to attract ultra-rich clients and encourage risk-taking. “The ‘harmful’ kind (of competitiveness) implies a ‘beggar-thyneighbour’ race to the bottom competition with other nations, leaving everyone worse off,” the letter added.
A Treasury spokesman defended the proposals and insisted that high regulatory standards would be maintained. “Now we have left the EU, it is right the regulators’ objectives reflect financial services’ critical role in supporting the economy, making the UK an even more attractive place to invest and do business,” he said. “We want to ensure the financial services sector is delivering for businesses and consumers across the UK, while also cementing our position as a global leader and promoting high international standards,” he added.
The UK financial sector has yet to strike a post-Brexit deal with Brussels on equivalence, which would allow London-based firms to fully operate in Europe.