Britain should avoid hasty reforms to make its financial sector more globally competitive following Brexit’s separation of industry from the European Union, a parliamentary report said on Thursday.
The Department of Finance has proposed dozens 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 expected this year.
The outlook for the “resilient” financial sector “looks relatively positive”, given that far fewer financial jobs than expected have moved to the EU, the House of Lords EU Affairs Committee said in its report.
But committee chairman Charles Hay said: ‘You should be a bit careful because there’s still a lot to play in there.’
UK lawmakers warn of weakening post-Brexit financial regulation
The report says that while the government would be unwise to bet on ‘unlikely’ future access to the EU for British finance, it should weigh the benefits of deviating from rules inherited from the bloc and thereby imposing new costs to businesses.
In addition, the Parliament strengthens the control of financial rules after Brexit.
Britain is proposing to give regulators a secondary goal of helping the financial sector be competitive, but Hay said the committee is asking the government to explain exactly how that would work in practice.
A separate parliamentary report last week declined to endorse the target, saying it risked undermining standards.
Bankers have called on the government to speed up reform, but Hay said getting the sequencing right was key to reaching the “new place” for a sector that accounts for 10% of total UK tax revenue.
“More important than speed is the final answer, because if you rush and do the wrong thing, you’ll damage something very valuable,” Hay said, describing the report.
Britain’s relationship with the EU is strained, with Britain’s clearinghouse access to the bloc due to end in three years to reduce heavy reliance on London, although the EU granted known access on Wednesday under the name of equivalence to the clearinghouses of China and Israel.
A row with the EU over Northern Ireland’s trade relationship with the rest of Britain, given the province’s open border with EU member state Ireland, has put on the ice a new forum for financial regulatory cooperation between Britain and the EU outlined in a memorandum of understanding.
“The MoU would still have value as a mechanism for strategic dialogue,” the report said.
Finance officials say the MoU could help improve relations and open the door to EU equivalence later.
Hay, who has worked in insurance for more than two decades, said equivalence for UK reinsurers would benefit London and customers in Europe.
(Reporting by Huw Jones; Editing by Bradley Perrett)
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