A group of 58 leading economists and politicians, including former commerce ministers Vince Cablehas written to the Chancellor of the Exchequer saying scaling back city regulation would put the UK at risk of another financial collapse.
The open letter, also signed by former Greek finance minister Yanis Varoufakis and Columbia University professor Adam Tooze, is a response to the Queen’s speech. Outlines Rishi Sunak’s plan to ‘cut red tape’“Pass the Financial Services and Markets Act.
“We wholeheartedly support the government’s goal of stimulating long-term economic growth in the UK, including through financial regulation,” the letter said. “However, we believe competitiveness is an inappropriate target for regulators.”
News of the pending bill – which the UK aims to replace post-Brexit EU regulations – has raised concerns about a regulatory race that economists say could force regulators to act as “cheerleaders” for big city institutions.
Competitive goals, they argue, could be a “recipe for excessive risk taking” and could create the same conditions as the 2008 banking crash. “After the last global financial crisis cost the world economy some $10 trillion, it is widely believed that the then Financial Services Authority’s (FSA) focus on competitiveness contributed to the disaster,” the letter said.
They even point out Andrew Bailey’s 2019 speech – Governor of the Bank of England, who was head of the FSA’s successor, the Financial Conduct Authority – in which he opposed the reintroduction of competing targets for the City of London regulator. “It’s not going to end well for anyone, including the FSA,” Bailey said.
Cable said in a statement: “It is unusual that the lessons of the financial crisis are being forgotten despite the enormous damage. The new emphasis on ‘competitiveness’ rather than stability and security is an ominous one A warning that those who forget history are doomed to repeat it.”
The pending bill is part of the government’s response to pressure from lobbying groups such as UK Finance, TheCityUK and the City of London Corporation, which are broadly opposed to Brexit but have yet to see any benefits promised by pro-Brexit politicians.
For example, city groups have been pushing for a review of capital requirements for insurers and banks, which could help free up cash for new investments and loans and reduce the cost of venture capital as they will have to hold less capital to protect against potential losses.
This is on top of pushing for changes to a broad set of regulations known as Mifid II. There have been calls for companies to be allowed to bundle customer charges and to permanently remove caps on “dark deals” — which mask the size of the planned deals but give investors better market prices.
Some have called for a review of UK-specific rules, such as requiring banks to protect consumer deposits by separating retail and investment banking, as well as reducing the time it takes for company directors to obtain regulatory approvals and simplifying challenges to challenger banks.
The Treasury Department has yet to identify the key policies that make up the Financial Services and Markets Act, which is expected to be introduced to Parliament in the coming months, but has dismissed claims it will lead to a watering of regulation.
TheCityUK chief executive Miles Celic has defended the reintroduction of the regulator’s competitiveness goals, saying other countries such as Hong Kong, Australia and Singapore have managed to balance other goals such as financial stability and consumer protection.
“It goes without saying that high-quality, well-implemented and effective regulatory standards are clearly beneficial to competitiveness and economic growth, so there is no conflict between an effective regulatory regime and the proposed new secondary competitiveness goals,” Celic said.
A Treasury spokesman said: “We want to ensure that the financial services sector serves businesses and consumers across the UK, while strengthening our position as a global leader and promoting high international standards.
“Now that we are out of the EU, the regulator’s targets reflect the critical role of financial services in supporting the economy, making the UK a more attractive place to invest and do business, rightly.”