Keir Starmer’s plan to foster closer economic ties with the European Union is likely to exclude financial services after senior City figures pushed back against the reintroduction of EU regulations.
The prime minister has called for “closer ties” with the EU in a bid to boost economic growth, with senior cabinet members including justice secretary David Lammy mooting a proposal for a new customs union.
But senior City figures have expressed concern about the move, calling for carve-outs for financial services in any future negotiations to give the Square Mile greater regulatory freedom.
Steven Fine, chief executive of investment bank Peel Hunt, told the Financial Times: “The UK has made substantial progress on financial services reform over the past few years and most regulatory lawyers will tell you that we have significantly less friction in our regulatory framework compared with most jurisdictions in Europe.
“You don’t want to create potential uncertainty just as the City is recovering its mojo.”
City adapts to post-Brexit conditions
In the run-up to and the immediate aftermath of the UK’s Brexit vote in 2016, there had been fears of an exodus of European bankers and financial services professionals from London in light of the UK’s withdrawal from the single market, which introduced fresh trade barriers with the EU.
But those fears would later turn out to have been overblown, with only a small number of financial services roles relocated to other European financial centres such as Frankfurt and Amsterdam.
Instead, many firms have taken advantage of the increased regulatory flexibility afforded to the Square Mile, with top banks offering greater London pay packages following the abolition of the EU’s bonus cap rule in the UK, which set limits on banker bonuses as a proportion of their salaries.
The government has also backed Bank of England reforms to raise the MREL threshold – the minimum amount of money and certain types of debt that a bank must have – to £25–40bn, in a move which could free up billions for lending and investment.
Concerns have also been raised that submitting to EU rules on financial services could see Brussels steer its regulatory framework in a direction that could be harmful to London, risking sacrificing its crown as Europe’s biggest financial centre.
Mats Persson, macro strategy leader at EY-Parthenon, told the Financial Times companies “are seeing the benefits of the UK’s ability to regulate in a nimble and innovative way, particularly in relation to emerging technology and access to global markets”.