Britain should avoid hasty reforms to make its financial sector more globally competitive after the industry’s separation from the European Union by Brexit, a parliamentary report said on Thursday.
The finance ministry has proposed scores of changes to rules governing capital markets, company listings and insurance to exploit independence from EU regulation and create an opportunity for Britain to innovate. Legislation is due this year.
The outlook for the “resilient” financial sector “seems relatively positive,” given that far fewer finance jobs than anticipated have moved to the EU, the House of Lords’ European Affairs Committee said in its report.
But committee chair Charles Hay said: “You should be a little bit wary because there’s a lot still to play out in this.”
The report said that while the government would be unwise to bet on “unlikely” future access to the EU for British finance, it should weigh up the benefits of diverting from rules it inherited from the bloc and thereby imposing new costs for companies.
Separately, parliament is toughening up scrutiny of financial rules post-Brexit.
Britain is proposing to give regulators a secondary objective of aiding financial sector competitiveness, but Hay said the committee was asking the government to explain exactly how this would work in practice.
A separate parliamentary report last week declined to endorse the objective, saying it risked weakening standards.
Bankers have called on the government to speed up reform, but Hay said it was critical to get the right sequencing to reach the “new place” for a sector that accounts for 10% of total British tax receipts.
“More important than the speed is the final answer because if you rush and do the wrong thing, then you will damage something very precious,” Hay said, outlining the report.
British relations with the EU are strained, with the UK clearing house access to the bloc set to end in three years to cut heavy reliance on London, although the EU on Wednesday granted access known as equivalence to clearing houses from China and Israel.
A spat with the EU over Northern Ireland’s trade relations with the rest of Britain, given the province’s open border with EU member state Ireland, has put on ice a new British-EU financial cooperation forum outlined in a memorandum of understanding.
“The MoU would still have value as a mechanism for strategic dialog,” the report said.
Finance officials say the MoU could help improve relations and open the door to EU equivalence later on.
Hay, who worked for over two decades in insurance, said equivalence for UK reinsurers would benefit London and customers in Europe.
(Reporting by Huw Jones; Editing by Bradley Perrett)
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