The UK chancellor plans a second “Big Bang” for London’s markets
Currently, the chancellor’s vision seems to be long on promise and short on substance
Speaking directly to City bankers and traders UK Chancellor Rishi Sunak, a former Goldman Sachs alumni, said that they should prepare for Big Bang 2.0. Big Bang was the colloquial name given to the liberalisation of UK financial markets in 1986, that was instigated by then PM Margret Thatcher.
Opening up the markets bought an end to fixed commissions and created increased competition. City firms such as banks and brokers merged to become dual capacity businesses that could act as either agents or principals, and foreign ownership became commonplace.
Rishi Sunak has promised to reignite UK financial services markets, though he didn’t provide any specific details for his plans. However, there are thought to be three areas where we could see significant changes.
Firstly the government is reviewing how it can make the idea of listing in London more attractive to companies floating on the stock market. London is the fintech capital of Europe it has the highest number of Unicorn start-ups and more venture capital funding is raised in the UK than in the rest of Europe.
Rishi Sunak would like to persuade those Unicorns to list on the London Stock Exchange and not in New York or other overseas locations.
The second area that Mr Sunak may make changes in is banking regulation and its thought that he is considering reducing the amount of capital that banks and insurance companies must hold against their investments and liabilities. Welcome as a relaxation of regulatory capital rules would be there are a number of significant obstacles that would need to be overcome.
Internationally accepted capital adequacy rules for banks are set by the BIS or Bank for International Settlements which would limit the amount of leeway that any new UK legislation could have, secondly as the UK begins negotiations with the EU over the relationship between the City of London and Europe now might not be the best time to be talking about deviating dramatically from EU regulatory policy.
That’s because one of the EU sticking points over access for UK firms to the trading bloc. Is that there should be demonstrable regulatory equivalence. By creating lower capital adequacy ratios for UK banks and insurers the Chancellor risks giving the EU a stick to beat the UK markets with.
Finally, lower capital adequacy rules may not play well to UK taxpayers who had to bail out profligate banks to the tune of hundreds of billions of pounds, after the 2008 credit-crunch and financial crisis. Much of that money has yet to be repaid, nearly 12 years later.
Speaking about his plans Mr Sunak said that: “If you look at the history of the City stretching even further back than that (Big Bang) it has always constantly innovated, adapted and evolved to changing circumstances and thrived and prospered as a result” he added that “I feel very confident and very excited, about the future of the City of London and financial services in general”.
One could be forgiven for thinking that the chancellor seems to be long on promise and short on substance.
Those that run the UK’s financial services businesses will be looking for something far more substantial from the Chancellor and City minister John Glen when it comes to cutting a deal with the authorities in Brussels.