Rewind two years, and that would have been a catastrophe for the City. The UK’s banks, insurers and fund managers depended on “passporting rights” that allowed them to sell their services across Europe. Over three decades, London had become the Continent’s financial centre, generating vast wealth for itself. Locked out of the single market, all that would disappear. And with very little to replace it, the City would quickly be in deep trouble.
As 2020 has unfolded, however, even amid the distraction of a pandemic, the City has started to work out that making its own rules is not such a terrible outcome. We saw one example last week. The Government decided to opt out of the EU’s new rules on settlement of equity trading. A problem? Not really.
“Growth companies on quoted markets have dodged a bullet that would have struck the heart of liquidity in the small cap market,” said Tim Ward, chief executive of the Quoted Companies Alliance, in a statement on the decision.
That is true enough. The EU’s scheme – pithily entitled Central Securities Depositories Regulation – illuminates much of what Brussels gets wrong. It takes a largely non-existent problem (very few trades don’t settle), tackles it with hugely cumbersome rules, complete with brutal financial penalties for non-compliance, while completely ignoring a much larger issue, which is that the number of quoted companies is collapsing largely because there is already too much regulation (here’s a suggestion – a new set of directives is not the best way to start fixing that).
The City has dodged a bullet on that one. Outside of those rules, it can start to build a better small cap market – and probably attract lots of high-growth European companies looking for a cheap and effective place to list.
There are other examples. The Treasury has indicated the UK may not adopt the EU’s new rules on “sustainable finance” designed to prevent fund managers marketing assets as green when they aren’t really. True, there is some merit in that. A product should always be accurately described. And yet, as so often, the EU’s rules are mind-bogglingly complex.
The directive on sustainable finance runs to 9,580 words, footnotes included, of densely written legal jargon. In reality, existing advertising standards will be fine. And Britain’s thriving fund management industry will be better off ignoring those rules, and saving some money that can be used instead to invest in companies and generate better returns for investors (sort of the whole point of fund management, come to think of it).