Protect the high standards of financial crash reforms when we leave the EU

Catherine McGuinness
The City Continues To Struggle As The Stock Market Crashes
Source: Getty

Ten years ago, Apple released its first ever iPhone, selling around 1.4m handsets. In the same year, J.K. Rowling completed her final book of the Harry Potter series, while the London 2012 Olympics logo was unveiled to the world – receiving mixed reviews.

But 2007 was also the year that saw the beginning of the financial crash. The implications of this have seen the role of regulators rise to ever-greater prominence, with firms forced to rethink how they conduct their day-to-day activity.

Banks globally had been engaging in risky and more complex activity, partly by encouraging people to borrow more than they could repay, while bad loans were repackaged and resold as healthy debt. In 2007 the chickens came home to roost. The US’s fourth largest investment bank, Lehman Brothers, was forced into liquidation, making it the largest bankruptcy filing in US history.

Separately, customers of UK retail bank Northern Rock lined the streets to take out their savings – withdrawing almost £2bn in just three days.

That was just the start, and the financial sector came close to collapse.

Firms that had been involved in the activity which culminated in the crash were now faced with significant work to restore the sector’s resilience and reputation. The process of reconstruction was always going to be long and complex.

As the home to many of the financial institutions that were impacted by the crash, the UK would play an instrumental role in reforming the sector. The financial sector did not relinquish hope of rebuilding. Instead, it readied itself for hard line regulatory reform.

Since the economic downturn, there have been more than 80 pieces of reform to the UK’s banking sector, stemming from G20 recommendations and EU regulation.

Capital requirements for the largest banks have risen ten-fold since the crash, meaning institutions are more protected if faced with adverse economic conditions. Ring-fencing, which splits a bank’s retail banking arm from its investment branch, will improve the resilience and resolvability of banks and seek to ensure the tax-payer will never again be faced with a bailout.

The Senior Managers’ Regime was created to put accountability front and centre, ensuring that the riskiest behaviour didn’t equal reward – instead, the line of accountability is now much clearer. Separately, a new independent body, the Banking Standards Board, was set up in order to hold banks to account when it comes to behaviour and competence.

The reforms have been plentiful, but necessary; and they are still being implemented.

Although there were no positives to the financial crash, it did highlight the need for strong regulatory reform to navigate the sector away from more economic woes. Our regulators, all those ten years ago, acted swiftly to instil a step-change in behaviour and rebuild the sector.

The UK’s departure from the EU has raised the question of how regulatory reform should be addressed in the future. From conversations I’ve had with policymakers, financial firms and government officials – both in the UK and overseas – there is no desire to see existing regulation watered down or cooperation over future regulatory reform reduced. In fact the sentiment is quite the opposite: in order to avoid the sector potentially facing another crisis, we must see consistently high standards maintained across all the world’s major financial hubs. As the leading financial centre, London has an indispensable role to play in guiding and implementing international regulations.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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