UK has ‘fantastic opportunity’ in financial services says Klarna CEO
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Legal expert Barnabas Reynolds urged the Prime Minister to adopt a proactive approach, warning failure to do so risked leaving the UK in an even worse position than it faced before quitting the bloc. But he also revealed a “key ingredient” that he said would ensure equality before the law for all interested parties.
He explained: “Now that we have left the EU, the UK has the chance to leap ahead economically and restore its business-friendly approach to law and regulation, while at the same time protecting consumers from harm.
“The biggest and quickest win would be to rein in the regulators. Currently they enjoy what is, in effect, unfettered power over the everyday activities of Britain’s financial services firms.”
In accordance with delegated authority from Parliament, financial regulators currently had the power to make rules, and interpret, apply and enforce those rules against firms that they deem to be in breach, Mr Reynolds warned.
He added: “Of course, the financial markets need regulators, given the inequalities of information that often arise between buyers and sellers, the need to ensure market pricing reflects true market activity, and because buyers frequently purchase products from sellers which require those sellers to be around for the long term. Someone has to supervise these matters.
“However, the current arrangements for overseeing the regulators by Parliamentary sub-committee and limited recourse to the courts through judicial review are inadequate.”
The Government was proposing to expand the authority of Britain’s financial regulators over the making of rules, post-Brexit, to “sweep up what has in recent times been largely an EU statutory regime, politically controlled”.
In itself, such a move was a welcome step which moved the UK back towards its traditional model, Mr Reynolds stressed.
However, he continued: “Without further change, it risks creating an even worse situation than we had within the EU.
“The danger is that rules continue to be as poorly drafted as those made by the EU’s politicised code-writers; and that individual regulators apply idiosyncratic interpretations of what will now be their own rules, when supervising firms and enforcing against breaches of those rules.”
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Such an approach was far removed from the UK’s common law model, where rules for commercial matters were clear and have financial risk as their focus, as opposed to what he called “political interests such as EU integration or business-winning for particular member states”.
Mr Reynolds said: “Businesses (like individuals) are presumptively free unless there is a clear, well-founded rule to the contrary.
“If we are to rein in our financial regulators we need to introduce new statutory provisions, instructing them only to make rules which are clear and predictable in effect, and to supervise and enforce predictably and consistently against those rules.
“Then we need to add a key ingredient, the only thing that will make sure these disciplines are observed, an independent adjudicator, who sits above the regulators and firms, ensuring that all are equal before the law. This is the courts.
“A new right to appeal to the courts needs to be introduced for any significant supervisory or enforcement decisions, whereby judges would review the merits of those decisions and ensure the new statutory disciplines have been observed.”
Parliament’s Treasury Committee established a sub-committee for scrutiny of financial services regulations last month.
Commenting, chairwoman and Tory MP Mel Stride MP said: “Following the UK’s exit from the EU, our regulators have assumed significant new responsibilities. Those will require scrutiny, and Parliament has an opportunity to put in place a process which is less bureaucratic and significantly more nimble than was previously the case in the European Union.
“The Treasury Committee is well placed to conduct this scrutiny. We often consider new regulatory proposals and, given our responsibility to scrutinise the Treasury and its associated regulators, we can take a holistic view of regulatory change.”
She added: “Our approach will be targeted and flexible, with the new Sub-Committee devoted to the scrutiny of financial regulations and underpinned by a new and well-resourced unit of experts and specialists.”
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