The departure from the EU and the regulatory structures involved puts the UK under pressure to stay competitive to make up for the migration of money into the remaining 27 member states. The UK government says it is reviewing rules that might hamper the City.

The UK government intends to review regulations of financial markets to keep the sector competitive after Brexit, coming at a time when there have been concerns of an exodus of assets into the European Union. 

Economic Secretary to the Treasury John Glen told Bloomberg last week that the government will continue overhauling rules covering initial public offerings and fintech firms. It is also preparing to consult businesses on “detailed proposals for wider reform to the capital markets” in the summer, he is quoted as saying. The review will look at changes to market structure, transparency rules, as well as commodities. The aim is to reduce costs and burdens for firms while maintaining high standards of regulation, he added.

As this news service has noted recently, more than a quarter (26 per cent and 57 out of 222) of UK financial services firms have articulated the negative financial impact Brexit is having or will have on their business. There remains debate over the extent to which Brexit will hurt the UK financial service sector (the UK trade pact with the EU, agreed at the very end of 2020, did not address financial services in detail). Late in 2020, the fund administration industry in Luxembourg played down threats to the UK when it spoke to this publication. The EY Financial Services Brexit Tracker shows that 43 per cent of financial services firms say they have moved or intend to shift some operations and/or staff from the UK to Europe. To date, a total of almost £1.3 trillion ($1.8 trillion) of financial assets have moved to the EU.

Glen reportedly said that any changes will be to minimise the burden on market participants, but “without undermining the high standards and the integrity of our market and our market reputation.”

Brexit, and the fact that the EU and UK haven’t yet hammered out a financial services deal, means that London and the wider country has to re-think what its value proposition is internationally. The benefits of English as an international business language, English common law, political stability and a timezone straddling Asia and the Americas remain important advantages. But with taxes rising in the UK and certain other countries to cope with the pandemic’s massive cost, jurisdictions are under pressure to prove their appeal. Lawyers have also told WealthBriefing that the UK’s relative speed in rolling out vaccines has been a plus in encouraging HNW immigrants to enquire about entering the country.

In December 2020, New City Initiative, which comprises 46 asset management firms from the UK and continental Europe, managing approximately £500 billion ($668 billion), set out a number of ideas that policymakers should adopt to promote London’s financial sector. At present, structures such as the European Union’s UCITS regime and its Alternative Investment Funds model, are established investment industry features. UCITS funds can be bought and sold across national borders without separate local registrations. Following the UK’s departure from the European Union, it needs to reconsider how it taps into international fund markets.

A study by NCI says that the UK should make use of the Mutual Recognition of Funds scheme operated in Hong Kong, and regulators should examine other mutual recognition programmes in other markets, such as those of mainland China. The UK should also sign at least one or both of the Asia Region Funds Passport (ARFP) or ASEAN Collective Investment Scheme (CIS) systems.