Britain eyes £95 billion Brexit prize in race against EU to unlock investment

Jacob Rees-Mogg's new Brexit role pivotal to Boris Johnson

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Leaving the European Union has opened opportunities for improving or scrapping burdensome red tape on the financial sector with a key target being Solvency 2, a set of regulations which governs the amount of money insurance companies can use to invest. The issue has been a topic of discussion for the Association of British Insurers (ABI) which is holding its annual conference today and has previously estimated changing the regulation could unlock around £95 billion worth of investment. This it is argued could be used to boost projects in key areas such as net zero, however concern is growing about a race to stay competitive as the EU also finally reviews the regulation itself, prompting fears the UK could end up behind the curve. Tracy Blackwell, CEO of the Pension Insurance Corporation, told it was “important that the reforms are implemented without further delay.”

“Discussions about reforming Solvency II have been going on for years and it is noticeable that the Europeans are moving ahead with their own reforms.

“The life chances and financial security of millions of people across the country depend on the timely and successful reform of this key piece of financial services regulation.”

Hopes for coming reform were raised yesterday as Economic Secretary to the Treasury John Glen outlined plans for red tape around Solvency 2 to be cut.

Speaking at the ABI’s annual dinner Mr Glen said: “EU regulation doesn’t work for us anymore and the government is determined to fix that by tailoring the prudential regulation of insurers to our unique circumstances.”

“We have a genuine opportunity to maintain and grow an innovative and vibrant insurance sector while protecting policyholders and making it easier for insurance firms to use long-term capital to unlock growth.”

Charlotte Clark, Director of Regulation at the ABI, said the announcement was “a positive step that sees us well on the way to ensuring that we have a package that provides additional investment in the UK, without undermining the high standards of policy holder protection we have.”

It has also been welcomed by many major insurers with Penny James, CEO of Direct Line Group, and Claudio Gienal, CEO of AXA UK and Ireland, both commenting on the greater ability it would give for insurers to invest in infrastructure.

Ms Blackwell said she welcomed John Glen’s announcement, adding: “These changes once implemented should help channel billions of Pounds into areas like social housing and urban regeneration from long-term investors like Pension Insurance Corporation, whilst securing the pensions of our policyholders for decades to come.”

Craig Thornston, chief investment officer at Scottish Widows, said: “A bold and pragmatic approach is required to unlock the potential of the UK’s pension industry to invest in the infrastructure required to support the transition to net zero, particularly where long-term illiquid investments are essential, whilst still generating stable returns for shareholders.

“Positive change will lead to a win-win for pensioners, savers and the economy.”

As well as Solvency 2 another key area cited for reform is Mifid 2 which applies charges for market research leading to criticisms it has reduced the ability of investors to discover smaller firms.

MP Sir Iain Duncan Smith told The Daily Telegraph: ““If you free [businesses] up from the terrible mess that Mifid is in, it opens up the market to a much wider group of entrants, so that stimulates business.”

Although the Financial Conduct Authority (FCA) has already scrapped the rules for smaller companies there have been calls for this to go further, something recently discussed at a Downing Street meeting with tech firm bosses on UK competitiveness.

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The UK is not alone in looking to boost its competitiveness though with the EU keen to move its banks away from reliance on London’s clearing houses for handling transactions.

Brussels has already had to extend temporary access to London once but recently warned this would not be continued after 2025 with a consultation also launched on how to improve the EU’s own clearing capacity.

The plans potentially pose as big a problem to EU banks as London’s financial service providers though with warnings they would instead opt for New York if access to London ended, due to better liquidity and market access.

London clearing house LME told “The LME and LME Clear welcomes the European Union’s decision to extend equivalence for UK (clearing houses) until June 2025, which will allow LME Clear to continue serving its EEA members.

“We will work closely with our market and the regulators to ensure continued access to our trading and clearing services for all members and clients, in the current post-Brexit landscape.”

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