UK will allow banks to take more risk to stay competitive
BRITAIN will allow banks to take more risks in order to keep the City of London a leading global financial centre, a government minister said on Tuesday (Nov 29).
City minister Andrew Griffith said a new financial services bill now being approved in parliament will bring financial rulebooks up to date. It will make regulators nimbler and cut insurance capital buffers while maintaining high standards.
The City was largely cut off from the European Union (EU) by Brexit and now faces greater competition from other financial centres like Paris and Frankfurt, as well as longstanding rivals like New York and Singapore.
Next week, the EU will set out a new law to force banks in the bloc to shift some of their euro derivatives clearing from London to Frankfurt.
To boost the City’s global competitiveness, Britain’s finance ministry promised a “Big Bang 2.0” shake-up of financial rules. Griffith said the “overall thrust” is to allow more risk. “You get rewards from taking risks, you shouldn’t be risk-off, we just need to manage that in an appropriate way.”
He added: “We can make the UK a better place to be a bank, to release some of that trapped capital over time around the ring-fence.”
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Banks have lobbied to ease rules that force them to ring-fence or insulate their retail arms with a bespoke cushion of capital – regulations which the Bank of England has vigorously defended.
Griffith also said he would be pragmatic and selective when it comes to scrapping any EU-originated rules. The focus will be on keeping Britain an open financial market which allows skilled labour to move in and out, reducing “friction” through proportionate rules, and finding “alignment” with regulation elsewhere.
UK discount
Britain’s reputation as a stable location for financial services took a severe knock in September, when a “mini-budget” led to turmoil in bond markets, forcing the Bank of England to intervene.
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Charlie Nunn, chief executive of Lloyds – Britain’s biggest domestic bank – said that new prime minister Rishi Sunak had since calmed markets; however, the period of political chaos over the nation’s finances had a lasting effect on investor appetite.
“There is nervousness about the UK overall,” Nunn said. “The UK still has that discount.”
Alison Harding-Jones, head of Europe, the Middle East and Africa mergers and acquisitions at Citi, said that Britain remained a strong place and open for business.
“I hope what we’ve seen over the course of the past few months is a wobble that doesn’t make a difference in the strength of the UK, but we will have to see,” she said.
Nunn welcomed the renewed emphasis on the City’s competitiveness, saying that it had not been a focus over the last decade.
He added that Lloyds has been offering interest-only or lower-cost products to help mortgage borrowers struggling with the growing cost-of-living crisis in Britain for the last three to four months. REUTERS
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