By the CityUnited Team, Sun 21 Feb 2021
The UK’s financial and related professional services success story is based on innovation, openness, and competition.
The ‘cluster’ effect of many businesses operating here is beneficial and helped by the advanced market infrastructure in place – even in our homes. Now, as many countries vie to have their own financial centres and innovation hubs, they look to the UK, and London in particular, as a model. They find that it is not a single issue that is behind British-based success, but a number of complementary, long-standing advantages that are often taken for granted by those who work and live here.
Sometimes our assets simply come with history. As a trading nation, the UK has inherited a global outlook and the international links to go with it.
Global Outlook: Global Partnerships
The Governor of the Bank of England observed in a speech this month that, “the public goods of open economies, an open financial system and the stability of that system are global, not regional, in nature”.
One lesson for politicians is the rising markets of Asia and markets elsewhere are opportunities for the UK to work with and not threats to be walled away from. Imagine for a moment if the City had taken fright about the rise of Chicago in the 19th century. Chicago’s prosperity has not been at the cost of the UK, and investors in those UK firms who set up new ventures in the American market made the right choice. Likewise, today there are financial centres with specialisations that complement the UK offer and none that can offer the sheer scope of international reach that can be found from here.
The UK’s regulatory environment reflects the expertise that has been acquired by the Bank of England, the FCA and other institutions. An approach that enables innovation is one reason why the UK has been able to develop FinTech – where London employs more people than New York – and an example of a sector supported by a helpful regulatory ‘sandbox’ and not a brick wall. HM Treasury is reviewing the UK’s regulatory framework right now, so business should make the case that it needs this to continue and for the UK to look at its international partners and ensure that regulation is made with an understanding of its global impact.
Driving regulatory thought leadership
The global policy landscape will not stand still: rather, new rules and regulations affecting the financial services industry will continue to be devised as the industry and the world around it evolves and reacts to events, such as the COVID-19 pandemic.
With the world being more globalised, more of the standards for financial and related professional services that make ‘The City’ work, are set at the international level. It is here, at the top table with the G7, the G20, the Financial Stability Board and other global bodies, where the UK’s experience is most needed. The UK will need to drive regulatory thought leadership and reach out to regulators around the globe to ensure they have a good understanding of the robust UK regime, thus facilitating the establishment of mutual recognition agreements and other ways of avoiding unnecessary barriers to trade and investment.
One avenue for this will be using the network of bilateral and multilateral regulatory dialogues with financial centres.
The UK’s recent dialogue with Switzerland covered how to deepen cooperation in financial services through an ambitious and comprehensive mutual recognition agreement. It also set aside the politicised EU ban on Swiss exchanges – a significant message that relationships need to be built on a better basis than the EU’s flawed equivalence architecture. The Economic Partnership Agreement with Japan will include regulatory dialogue and the financial dialogue with Singapore goes alongside the discussions on the aspects of the financial service of free trade agreements with other Pacific powers: Australia, Canada, New Zealand. Even with the U.S, there is a regular Financial Regulatory Working Group. Key issues of setting standards in global bodies, providing the free the flow of data and how to prepare common approaches to challenges such as climate change policy and cybersecurity are the hallmarks of these discussions.
Business at the regulatory table
The private sector has a role to play here too. Initiatives like FinTech bridges or FinTech cooperation agreements only work when business is at the table. Regulatory dialogues can only really be deemed successful if they are framed with the end-users in mind. So this is where businesses, and their trade associations, need be active and to be attentive to market needs.
“Is the EU still committed to minimizing cross-border burdens, market fragmentation, and protectionism?” asked one CFTC Commissioner in 2018, “Or, as it appears, is Europe intent on creating a closed, self-contained environment in which they can operate without the support or engagement of outside regulators and businesses.”
If the EU will not adapt, the UK will press on internationally
Being outside the EU, at last free of being outvoted on financial services rules in it, the UK has the regulatory freedom to work with other financial centres and states to develop a global rules-based system. It would be better for the EU, and its citizens, to be part of this.
However, if forced to choose between being walled inside a protectionist regional bloc or working with the rest of the world, then the Governor helped to supply the right answer: UK rules govern a system 10 times the size of the UK GDP, so it is only right that we are not a rule-taker from the EU. It is also right that we use our rules responsibly and work with other financial centres to provide a global client base with the opportunity and choice that makes London the first international partnership sought by businesses operating from financial centres across the world.
Recognising and exploiting the UK’s assets
The UK also takes constitutional government for granted. Meanwhile the English language as the business world’s lingua franca ranks alongside the legacy of Greenwich Mean Time as factors placing the UK at the centre of the business world and helpfully between the U.S. and Asian time zones.
The availability of skilled staff and a country’s regulatory environment are often cited as the most important competitive issues for international financial centres. The UK leads here on both counts. The tremendous range of staff available in the UK, especially with the flexible labour market and a willingness to employ and welcome overseas expertise from around the world and not just with neighbours, has enabled business to flourish. The rich range of cultures and languages goes with the degrees of specialisation that are possible in a truly global centre.
Making the UK attractive to people are its cultural assets, the quality of life, attractive tax rates, educational opportunities, physical infrastructure and connectivity to the wider world not found elsewhere.
The UK now has it in its own power to make the most of these assets.
By The CityUnited Project Team, Sun 21 Feb 2021