Could Singapore-on-Thames become reality?

City talk | Veronique Dupont 12 Nov 2019

With a crucial election, Brexit and potential trade deals looming, the future of the beating heart of Britain's financial sector will be shaped in the coming months.

The specter of a "Singapore-on-Thames" - a highly deregulated financial sector like the city-state - is the dream of some pro-Brexit financiers who have criticized European Union rules that they believe are holding them back. But regulators don't appear to be in a mood to tear up the rule book just yet.

"It has been 10 years since the financial crisis and the subsequent reforms we put in place, and now is the right time to review our approach to regulation," says Nausicaa Delfas of the UK Financial Services Authority. "Brexit provides added impetus to look at things again."

And Barnabas Reynolds, who specializes in UK and European Union regulations, says that regulators should look at everything. Like many in the City - the financial hub in central London - he does not see "what's wrong" with the idea of a Singapore-on-Thames.

EU rules, although designed under Britain's influence, have restricted the sector's ability to compete with Wall Street, he argues.

Bank of England governor Mark Carney thinks differently.

He says there will be "no bonfire of financial regulation," instead promising a "dynamic" approach to "optimize our efforts without compromising on the level of resilience."

Most of the financial community is convinced that Britain, whose financial rules are currently aligned with those of the EU, has no interest in moving too far away from them at the risk of being denied access to the vital common market. "We have been on a trajectory of improving the regulation rather than weakening it," says University College London law professor Iris Chiu.

But some sensitive areas will be in the spotlight as soon as Brexit is completed, such as limits on bank bonuses or possible supervision of the booming fintech industry.

"Fintech is an area where the UK is seen as an international market leader" - and it will want to defend its position, says Sarah Hall of the UK in a Changing Europe think-tank.

This could mean applying a lighter touch to start-ups in the sector with regards to transaction traceability, customer data or the origin of funds.

The Solvency II Insurance Directive is also one of the areas where Britain may want to diverge from the EU, particularly on the amount of mandatory capital reserves, she adds.

Anti-corruption groups like Transparency International, whose recent report denounced the billions of dollars of illicit money that passes through Britain and its offshore territories, are still concerned.

They fear backtracking after efforts in recent years to lift banking secrecy in territories such as the Isle of Man and Jersey, even if others like British Virgin Islands are still largely escaping scrutiny.

Paul Fox of Finance Watch also points out that the devil often lies in the detail, and that any adjustments "can give rise to regulatory arbitrage" by investors who take advantage of any glitches in the new rules at the risk of destabilizing the financial system.

Britain's Brexit deadline has been pushed back again, this time to January 31 after lawmakers called for more time to scrutinize Prime Minister Boris Johnson's deal with Brussels.

He is hoping to win a parliamentary majority in early elections called for December 12, which in theory could make getting the deal through parliament easier.

The political deadlock has led to delays in the ratification and implementation of some financial transparency laws, including on trusts - investment vehicles that are often family owned.

Wealth management is one of the "areas of interest for Labour" if it takes power after next month's general election, says Sarah Hall.

The Labour party, led by the veteran socialist Jeremy Corbyn, has proposed a radical plan to renationalize key industries and tackle what he sees as a "corrupt system" of wealth and privilege.

Business leaders have already warned that could cost the country dearly.

Hall says the ultra-rich have already begun to divest their assets from London and place them outside the country out of fear of a Labour government, which would likely implement further capital controls and raise taxes.


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