Our membership of the EU has seen the UK carry the burden of costly, inappropriate and over-prescriptive regulation inconsistent with our needs and detrimental to our economy. The Second Market in Financial Instruments Directive (MiFID II) is a leading example. The Directive attempts to address the diverse aspects of the EU investment markets and protect investors from dishonest agents. The outcomes for the UK, however, have been wholly negative: the excessive regulatory requirements have increased business costs, deterred new firms from entering the market, and forced smaller ones to merge. As a consequence, the UK has seen a very significant reduction in consumer choice, which has increased prices and led to a less competitive marketplace.
MiFID II is by no means an isolated example. The Solvency II Directive, for instance, has imposed onerous reporting and capital requirements on UK insurance companies with heavy related burdens. HM Treasury estimated that the UK insurance sector alone not only had to shoulder a one-off cost of £2.6 billion but an additional annual cost of £200 million. The introduction of bonus caps has proven inflexible, costly and damaging to the free movement of human resources. Meanwhile, the looming threat of the Financial Transactions Tax (FTT) serves as an ever-present reminder that the EU is intent on further extending its suffocating regulatory reach.
Leaving the EU offers Britain the opportunity to withdraw itself from the EU’s regulatory reach and design a more effective system tailored to our requirements. The UK will finally have the agility in decision-making and implementation that it so desperately needs. Post-Brexit, the UK will be able to reform and refresh its own financial services rulebook. We will be free to enter financial service chapters within Free Trade Agreements (FTAs), not just with the EU but through bi-lateral agreements internationally, creating massive further opportunities.
But, independence from the EU alone does not offer the whole solution. It is just a stepping-stone that must be accompanied by domestic legislative and regulatory reform, encouraging innovation and market access, driving competitive markets within prudential limits, and avoid systemic risks. Where appropriate the UK should seek outcome based mutual recognition of regulatory regimes to develop long-lasting relations with trading partners. But, most important, the UK needs to strive for free trade agreements and cooperative arrangements.
At last, the UK will take back control of its financial services. By removing ourselves from the command of the EU the UK can unlock the full potential of the world’s most successful financial centre.