Scr-EU’d up thinking: ‘Brexit means less regulation’. It doesn’t.
There are those who believe a vote for the UK to leave the European Union represents a chance to peel back onerous regulations on business and finance. Those people are in for an unpleasant surprise.
It would be a mistake to confuse the surge in anti-EU sentiment with a reduction in public anger against bankers. The vote to leave the EU was an anti-establishment vote: a vote against perceived bureaucracy, against ‘expert opinion’ and, very much, against the sector most widely believed to aggravate the growing divide between rich and poor — banking.
First off, banks operating in the UK will continue to have to spend large sums to come into compliance with EU regulations, even if some of those regulations aren’t implemented until only months before the UK is likely to make an official exit, such as the Markets in Financial Instruments Regulation — a fact that only makes it more likely that the UK will end up adopting the rule in its entirety. Banks have already spent a load of cash coming into compliance.
Second, the economic pressure in Europe and the UK is likely to strengthen the political will to make sure banks have plenty of capital. UK representatives and regulators believe that new rules, however harmful to current business models, will strengthen the sector. It’s improbable they’ll be persuaded by any argument (and who would dare make it?) that banks need special leeway to survive the coming chaos.
It’s hardly a surprise that the popular mandate to Brexit was amassed largely in the areas of the UK that lack much financial sector presence. Think former industrial centres, years gone to waste, would be pleased to roll back on limitations to bankers’ bonuses?
A New York Times article on Tuesday might give an indication of what a significant many in England think about finance in general. One Sunderland Leaver’s response to the market reaction to Brexit: “I don’t have any money in the stock market… So what’s it to me?”
With such widespread apathy to the idea that financial services actually creates any value, bonus caps and claw-backs are here to stay. What about misconduct regulations? Remember that it was the UK’s own Financial Conduct Authority who months ago warned bankers against the practice of even taking clients out to dinner after a conference — guidance not even European authorities have made. The UK has a reputation for gold plating its financial services regulation, already.
And even if the two major political parties in the UK manage to survive the divisive effects of their lack of leadership, easing regulations won’t be on the cards. If the UK wants to retain access to the single market, it will have to impose equivalent regulations to that of Europe. In a "Norway option", the UK would not only have to essentially implement EU regulations, it wouldn’t be able to help shape them in the way it has in the past.
Things would surely only be worse if a populist party gains a meaningful presence in the Commons, given popular hatred of banks and bankers. Then again, if Leavers don’t see the backtracking their leadership has made in just the last three working days as a confession of dishonesty and lack of commitment to their followers, then maybe anything can happen.
So, whatever the state and size of a post-Brexit UK banking sector, it will be heavily regulated. Though, with the few exceptions of the UK’s own perpetually convalescent banks and branches of relocated institutions, the City may well end up just another suburb.