The conference heard the argument that 'Brexit,' far from being an impending catastrophe, is an opportunity for the City of London – one of the world's top two financial centres – to 'reboot' and rethink its regulatory environment.

Equivalence between jurisdictions

In many EU laws there is a recognised route for people from outside the EU to do business within the EU under an 'equivalence' standard. The US has availed itself of this in the context of reinsurance and central counterparties. The EU's second Markets in Financial Instruments Directive or MiFID II, which takes effect on 3rd January 2018, contains a good example of an 'equivalence' regime for the entirety of investment banking.

A speaker observed: "We can agree some sort of deal where there's a wide, enhanced version of equivalence for the UK (not difficult to start with because financial regulations in the UK and the EU are identical right now). This will allow the UK to revert to its traditional method of regulation which consists of higher standards and fewer rules.

"At the moment we are getting the worst of both worlds. We have higher standards which are 'gold plating,' while we have all the European prescriptions that can now be stripped out."

The UK and EU are bound to work together in future on various ideas in any case. Both are members of international standard-setting organisations such as the International Organisation of Securities Commissions from which so much regulation stems. The conference heard about this also.

Why the EU needs a deal

The idea of a good ‘Brexit’ deal received much approbation and was hailed as the likely outcome of the talks in some quarters of the conference. Some delegates were sure that the EU needed a deal because it needed access to London’s capital market, and indeed some were willing to bet money on that outcome.

One large reason for this is the fact that the next largest financial centre in the EU after London is Frankfurt, which according to one delegate’s estimate ranked 19th in the world, with Paris coming farther behind at 21st. Far higher up the list are Hong Kong and Singapore, which are themselves much smaller than New York and London. According to one estimate, Europe’s second and third best centres are not much larger than the Dubai International Financial Centre and Qatar.

One speaker argued: “These are tiny little centres; they are not liquid pools at all. They are very expensive places to do business and they are very expensive places to hire and fire. In fact, it’s almost impossible to hire and fire. One of my clients did a takeover of a Parisian business. They wanted to downsize. They laid off some people and then they were told when they advertised for new jobs that they had to offer the new jobs back to the people they had just laid off and, in fact, for more money. They actually ended up in a worse place than they'd started.

“So it's not an easy place to do business. In France, it's a requirement of law that you don't have to look at emails at weekends. These are unusual places to do business.”

At another point the conference was reminded that the damage that London sustained in the Second World War – about a third of London in all – did not last and the City recovered from it and retained its dominance. A delegate opined: “It takes something extraordinarily dramatic to shift a financial centre. It's a place where people come to do business. Brexit's a meaningful event but it's nothing like that in scale. So it's not going to shift that dynamic. People are going to come to the market for the expertise and liquidity that it offers.”

Beware the EU power-grab!

It is well-known that the EU is attempting to use the negotiations to pull various bits of financial business onto its own territory. It is also trying to obtain more of a say in regulation in the UK, despite the fact that the UK is leaving it. One delegate argued that the UK ought to resist these initiatives very heavily, adding that the first glimmers of the EU’s aggressive strategy were to be found in the context of Euroclearing and systemic clearing houses. He also thought that the EU wanted two further things.

“They want a bureaucratic, byzantine method of regulation – I've lived through that in the context of a European exchange client, where a college of regulators voting by committee in a highly politicised way engages in micro-decisions on each strategy. pre-trade restrictions. Taking an interventionist approach over and above reliance on disclosure, I think, is something that should be revisited.”

MiFID II's a priori measures were discussed, ranging from the regulation of organised trading facilities (OTFs) and fee disclosure to the extension of the systematic internaliser category and the unbundling proposition. One delegate said: "A lot of this stuff is interventionist and pro-competitive. It's an idea that's gone too far and Brexit really is an opportunity to reconsider all of this."

One American delegate whose office was in Switzerland and whose clients were in the EU raised the example of the Swiss taking on 'EU-lite' regulations in exchange for trading rights in the EU and asked whether the UK might have to follow the Swiss example. Another delegate thought this unlikely.

"I think the UK's position is different from Switzerland's. It's a global financial centre in its own right and the EU customer base comes to London in the way that everyone does from the rest of the world – from Russia, from India, from Africa, the US and elsewhere. They deal on the market by setting subsidiaries up here, which costs tuppence-ha'penny in the scheme of things. I don't believe the UK needs to follow the EU regime at all.

"Switzerland is in a different position. It's surrounded by Europe. It's a smaller market. It's not a destination market so it's had to go down an equivalence-based access route and it hasn't got the leverage not to be a rule-taker. I don't believe that that's the truth for the UK and in this context the UK isn't a G5 country so much as a G1 or 2 country because of its financial market. So it's in a very different position."

With this in mind, delegates returned to the idea that 'Brexit' is not likely to lead to a continuance of the status quo and the transformation of the UK into a mini-Europe on its own. Brexit, they were told, is much more likely to lead to a laissez-faire, free-market regulatory relaunch. Whether it does or not, only time will tell.