Banks, insurers and traders that comply with reinforced global financial sector rules should be allowed to operate unhindered across the world to spur economic growth and trade, a top British regulator said on Thursday.
Andrew Bailey, chief executive of the Financial Conduct Authority, said granting access to foreign markets in return for complying with globally agreed regulation would stop fragmentation in capital markets and increase competition.
In a speech that did not mention Brexit or Britain’s decision to leave the European Union, Bailey sketched out a plan for how financial services firms could operate more easily across borders in future.
British Prime Minister Theresa May has said Britain will quit the EU single market when it leaves the bloc after negotiations expected to last two years.
This means that banks in London which want to continue serving European customers are unlikely to keep their EU “passport.” They therefore face having to continue complying in full with the bloc’s rules, a regime known as “equivalence,” but without Britain having any say in the rules.
If enacted, Bailey’s plan would make it harder for the EU or other major markets like the United States to refuse access to British financial firms that abide by globally agreed rules, since the EU and United States are usually party to such regulations.
“I want to pose the question, would it be possible to take a different approach and to base market access on common recognition of higher-level global standards which are transparent and subject to regular review?” Bailey said in a speech in Berlin.
After the 2007-09 financial crisis, a welter of global rules were introduced to try to avoid more taxpayer bailouts of banks.
But these rules are non-binding and Bailey acknowledged that, in their current form, they could not provide an alternative to an EU “passport” or to the bloc’s “equivalence” regime.
He is not the first to suggest underpinning global rules.
David Wright, when secretary general of IOSCO, the global securities rule-making body, suggested some form of international treaty to reinforce rules, but he was quickly shot down. Countries like the United States are loathe to relinquish regulatory sovereignty to a global set of rules.
Bailey, who said his plan was a personal proposal and does not reflect the views of British regulatory bodies, said global rules allowing market access would be limited to areas like core bank capital requirements, winding up failed financial firms, and cracking down on market practices that could undermine financial stability.
“If the body of global standards were to be judged sufficient, it could provide a broader basis on which market access decisions could be made. This would of course need to be supported by consideration of how such standards would be created, implemented and then overseen,” Bailey said.
(Reporting by Huw Jones; editing by Adrian Croft)
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