The UK government has announced plans to loosen rules for banks and other financial institutions in a bid to win back jobs and investment lost since the Brexit vote in 2016.
Ireland has been among the big winners in that process, with around 36 UK-regulated firms shifting at least part of their operations and 1,200 finance jobs here in the five years after the vote, according to research by financial services firm EY. That included large-scale moves by global banks Barclays and Citigroup as well as dozens of smaller firms moving as few as one or two people to Ireland.
A total scrapping of banker pay caps and a higher bar to penalise senior executives and directors for misbehaviour on their watch are among the new UK measures. They are designed to appeal directly to decision makers whose responsibilities were toughened up and bonuses reduced across the European Union in the wake of the losses suffered during the global financial crisis.
The moves are unlikely to boost the UK operations of Irish banks including AIB and Bank of Ireland but could weigh against Ireland as a location for future investment by global investment banks, according to Diarmaid Sheridan, a financial services analyst at Davy Stockbrokers.
The proposed divergence from the European Solvency 2 regime would also make it easier for the likes of insurers, which manage trillions in assets, to put capital into climate friendly investments versus the EU where rules shoehorn funds into the lowest risk bond options, he noted.
While UK regulators led the push for tighter financial regulation a decade ago, Britain now sees its position outside the EU as a chance to undercut that regime so as to claw back lost investment and reassert the City of London financial district as Europe’s pre-eminent finance hub.
That status suffered a symbolic blow in November when the Paris’s Euronext Stock Exchange overtook London as Europe’s most valuable – if only briefly. Amsterdam overtook London as Europe’s busiest share-trading hub last year.
Britain’s finance minister Jeremy Hunt denied the decision to scrap post-crash rules would risk repeating factors leading to that crisis.
“It is perfectly sensible to make pragmatic changes such as the ones that we’re announcing today,” he said at an event hosted by the Financial Times.
“But we’re doing so very, very carefully to make sure that the UK is a competitive, exciting place to be and to invest, but also that we don’t lose the guard rails that we put in place after 2008.
The package of more than 30 changes includes lifting a cap on bankers’ bonuses and easing capital requirements for smaller lenders. The UK also said it will review regulations that hold bankers accountable for their decisions and will relax ringfencing rules intended to separate risky investment banking from retail operations – rules created after high-risk lending and so-called ‘casino banking’ was blamed for triggering a global financial crisis in 2008.
It remains to be seen whether the promise of a looser regime is enough to counter the reduced access to the EU.