Throughout the interminable Brexit debate, sensible voices have been hard to come by – but Andrew Bailey provides one.
The head of the Financial Conduct Authority was ahead of the curve in pushing for EU counterparts to match the UK's planning to ensure financial stability in the event of a no-deal Brexit and, now that MPs have effectively legislated against such an outcome, he has turned his attention to the longterm future of financial regulation in a post-Brexit world.
Financial and professional services account for more than ten per cent of the UK's entire economic output and generate upwards of £70bn a year in tax revenues, so setting the right kind of regulatory framework that protects and enhances this vital sector is a matter of huge importance.
Assuming the UK does leave the EU, an opportunity will exist to modify – over time – the regulation of financial services. Bailey does not propose a bonfire of the rules, and few in the City are calling for one, but he does recognise that the UK could take a different approach, one that keeps our system sufficiently close to EU rules (an equivalence regime) while at the same time taking advantage of the freedom with which a sensible Brexit could provide us.
Bailey acknowledged yesterday that “there are things we would have done differently with EU rules if we had developed them unilaterally.” Importantly, he suggests that the UK and EU's agreement “on the objectives we want to achieve...will not change after Brexit.” It's the origination and application of regulations that could be reformed, not the desired outcome. “Left to our own devices,” Bailey said, the UK “would construct financial conduct regulation in a rather different way.”
The idea of a post-Brexit Britain offering a “lower burden” of regulation will alarm the City's critics, but Bailey's vision is of a system based on our tradition of common law and reflecting London's position as a hub for global financial markets. On the issue of equivalence (whereby the UK and EU recognise each other's regulatory regimes) Bailey warns the EU not to apply too rigid a test and urges them to focus instead on the outcomes of any future UK system, rather than the rules used to get there.
Bailey's analysis is a measured, optimistic and timely contribution to this debate.