The British government last month proposed a far-reaching financial services law to exploit “freedoms” to write its own capital market rules since leaving the European Union.
The biggest market reform in two decades is expected to be approved by May 2023.
Liz Truss, the favorite to become Britain’s next prime minister, would give ministers “call-in” powers under the bill to overrule financial regulators such as the Bank of England, the Financial Times reported.
UK to ease Solvency II insurance capital rules to unlock ‘billions of pounds’
He has also said he would revisit the bank’s mandate to curb inflation, raising concerns about its independence.
WHAT IS THE INVOICE FOR?
Brexit means the UK can write its own financial rules rather than having to apply those agreed in Brussels. This could enable London, the world’s second largest financial center after New York, to attract and retain business as it also faces new competition from EU centers such as Amsterdam and Paris.
The Financial Markets and Services Bill is mainly about giving the Bank of England, the Financial Conduct Authority and the finance ministry powers to amend existing rules inherited from the bloc and write new regulation that keeps up to date with changes in markets and emerging sectors such as cryptoassets.
The bill also gives powers to change insurance capital rules known as Solvency II, make a company more quickly listed on the stock market, attract more retail investors and cut restrictions on trading shares in the ” dark’ or away from stronger regulation. exchanges
WHAT ARE CALL-IN POWERS?
Before the bill was published last month, outgoing Prime Minister Boris Johnson’s finance ministry indicated it could include a power for ministers to force regulators to change a rule, if it was in the public interest.
But just days before the bill was published, Bank of England Governor Andrew Bailey warned that maintaining regulatory independence was key to London’s position as a competitive global financial centre.
The call was dropped from the bill, pending further consideration, but is now expected to be added if Truss becomes prime minister next month.
The bill already contains a provision that allows ministers to direct regulators to review a rule, but without overturning it.
The ministry and lawmakers say that given the BoE and FCA’s greatly increased powers to set rules in one of the UK’s most important economic sectors, they must be more accountable to the government and parliament.
WHAT IS ALL THIS ABOUT COMPETITIVENESS?
Encouraged by the sector but in the teeth of opposition from the BoE, the bill already contains a new secondary objective for the central bank and the FCA to formally support the growth and international competitiveness of the financial sector, the competence of country regulators as Australia, Singapore, and Hong Kong have it.
Its main objective remains to keep banks, insurers and markets stable and to protect consumers.
However, some lawmakers fear the extra competition will mean a return to the “light touch” regulation that preceded the global financial crisis more than a decade ago, when UK banks had to be bailed out by taxpayers.
The industry, however, wants lawmakers to explain what benchmarks will be used to check that regulators are meeting the new competitiveness goal.
WHAT IS SOLVENCY II?
Solvency II are capital rules for legacy EU insurers and their reform has become a test of how far the UK will use “Brexit freedoms” to set its own financial rules.
The BoE says its proposals to reform the rules will free up billions of pounds from insurers’ capital cushions to invest in infrastructure while protecting policyholders.
The EU is also reviewing the rules and is further ahead of the UK, leaving the insurance industry and government frustrated.
Amanda Blanc, chief executive of insurer Aviva, says the BoE’s proposals so far do not free up enough capital and Britain should “get on with it”.
Convening powers would allow the finance ministry to force the BoE to make more generous proposals.
NEXT STEP?
Parliament will begin detailed deliberations on the bill in the autumn, after the new prime minister takes office, with final approval in May next year.
Making real changes to the rules will take time, as regulators will first have to put formal proposals out for public consultation, which could take many months before they are implemented.
(Reporting by Huw Jones Editing by Sinead Cruise and David Evans)
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