The UK has never in my lifetime felt as much like an island as it has during the pandemic.
A holiday abroad – once as easy as jumping on a £39 flight – has become something to dream about. Those with family in France or Spain have felt the distance to be as great as if they were on the other side of the world.
Now, as we cautiously reopen, we are evaluating our relationships with our nearest neighbours – both through negotiations on vaccine passports that will allow people to travel more freely and through continued debate about the UK’s future in a post-Brexit world.
Will our island status prevail, or will we maintain close ties with Europe? For the financial sector, the chancellor’s Mansion House speech at the beginning of the month provided some guidance.
The big question for the industry, now that it has become clear that equivalence with the EU is not on the table, is what the regulatory regime will look like.
In a recent survey, advisers told us that the ‘burden of regulation’ was the number one concern preventing them from growing their businesses. Businesses will be watching closely to see how government policy translates into the regulation that will affect their day-to-day operations.
In his speech, Rishi Sunak was quick to lay to rest the persistent ‘Singapore-on-Thames’ concerns that suggest the UK will compete with Europe through significantly lighter touch regulation.
The government’s intention, he said, is to strengthen rather than weaken the regulatory framework. The UK has been a key driver of much of the European regime, including Mifid II, so it is logical that we would not be in a rush to set that aside.
Tailoring to UK needs
In May, Financial Conduct Authority chief executive Nikhil Rathi said the focus would be "on tailoring [regulation] to the specificities and needs of UK markets and not simply diverging for the sake of it". One early example of that tailoring is the – currently temporary – relaxation of the Mifid II 10 per cent rule requiring businesses to notify their clients if there is a 10 per cent drop in the value of their investments.
The FCA initially gave advice businesses flexibility around the implementation of the rule in the Covid-driven volatility of last spring. In March, the relaxation was extended by a further six months while the FCA consults on whether the rule should be kept. Advisers have long warned that this rule can do more harm than good, often prompting clients to sell at the worst possible time. It is an encouraging sign for the new regime that the FCA seems to have listened.
An area of regulation for which recent FCA activity suggests potentially tougher implementation of inherited rules is the Mifid II product governance regime (Prod). This spring, the regulator looked at how asset managers apply Prod rules in the manufacture and provision of products, in particular how they take the interests of end clients into account through the product lifecycle.