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Canada Square stands between the Citibank building and the HSBC building in the center of the Canary Wharf financial district on October 14, 2022 in London, United Kingdom.
Mike Camp | In pictures | Getty Images
The UK government on Friday announced a sweeping overhaul of financial regulation that it says will overhaul EU laws that are “stifling growth”.
The package of 30 measures includes the relaxation of rules requiring banks to separate their retail operations from their investment arms. The measure – introduced in the wake of the 2008 financial crisis – will not apply to retail-focused banks.
The government has also confirmed it will review the rules surrounding the accountability of top finance executives – the second such regulation since 2008. The Senior Managers Regime, introduced in 2016, means that individuals at regulated companies can face fines for poor conduct, workplace culture or decision-making.
The changes announced in the package, known as the Edinburgh reforms, also include a review of short-selling, how companies are listed on the stock exchange, insurance companies’ balance sheets and rules for real estate investment trusts.
Finance Minister Jeremy Hunt said he wanted to ensure the UK’s position as “one of the most open, dynamic and competitive financial services centers in the world”.
“The Edinburgh reforms seize our Brexit freedoms to deliver a smart and homegrown regulatory regime that works in the interests of the British people and our businesses,” he said in a statement.
“And we will go further – delivering reforms to burdensome EU laws that stifle growth in other industries such as digital technology and life sciences.”
The government is billing the reforms as a way to capitalize on the freedoms offered by Brexit, saying hundreds of pages of EU law governing financial services will be replaced or repealed.
Many argue that Britain’s exit from the European Union has harmed the country’s financial competitiveness, with Reuters reporting that London has lost billions of euros in daily stock and derivatives trading on EU exchanges following its departure from the bloc. Researchers at the London School of Economics said earlier this year that financial services would be among the sectors most affected by Brexit.
Trying to boost the UK’s sluggish economic growth has also become a priority for the government, with the country predicted to be on the brink of a long recession.
The removal of the UK cap on bankers’ bonuses was one of the few policies announced by Hunt’s predecessor, Kwasi Kwarteng, that remained after his chaotic “mini budget”.
Kwarteng promised a “Big Bang 2”, referring to the deregulation of the London Stock Exchange in the 1980s, which attracted a host of global banks and investment firms to the UK and rapidly increased the size of London’s financial sector.
Another proposed amendment would see the regulators’ remit expanded to include facilities The competitiveness of the UK economy, particularly the financial services sector.
However, John Vickers, former chairman of the Independent Commission on Banking, warned in a letter to the Financial Times this week that “special favoring of the financial services sector … could be detrimental to it, as we all saw 15 years ago.”
Tulip Siddique, shadow city minister from the opposition Labor Party, called the proposed reforms a “race to the bottom”.
“There’s more risk and potentially more financial instability introduced because you can’t control your backbenchers, this is a Tory government,” she said, referring to an ongoing conflict within the ruling Conservative Party.
“Reforms such as ring fencing and the senior managers regime were introduced for good reason. The City did not want weak consolation prizes for selling down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.”
Kay Swinburne, vice chair of KPMG UK’s financial services practice, said in emailed comments to CNBC that the reforms are “a step closer to making regulation more efficient rather than a race to the bottom.”
“While most of these reforms have already been followed, they represent a step towards futureproofing the competitiveness and long-term growth of the UK financial services industry while seeking to maintain standards.”
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