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Brexit provides opportunity to reform financial services

Brexit provides opportunity to reform financial services

Brexit could provide a “once-in-a-generation” opportunity to reform Britain’s financial services industry, a report for the Trades Union Congress has said.

The report, carried out by The Financial Inclusion Centre on behalf of the TUC, found a number of issues affecting Britain’s financial services sector.

These include poor culture and integrity which has undermined trust, market inefficiency and a lack of plurality.

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The report stated: “Brexit may create a once-in-a-generation opportunity, and provide the impetus, for the reforms that many in civil society have been calling for to: make financial markets safer, reduce the impact of financial market crises on the real economy, rebalance the economy away from financial services, address short termism in financial markets, and improve the economic and social utility of the City so that it focuses less on proprietary activities and more on providing services that households and the real economy needs.

“But, we must be realistic. It is not clear that civil society has the credible policies that would produce the desired reforms, or that there is the political will for reform on any real scale given the importance of the financial sector to the UK economy.

“Policymakers will need to be persuaded that the potential benefits of reform outweigh the potential costs.”

Among the issues highlighted by the report was the fact that 70 per cent of investment funds underperformed their benchmark over the past 10 year.

It also highlighted the FCA’s findings that the high costs incurred by active investment managers reduced the size of a typical investor’s fund by 44 per cent over 20 years.

The report also expressed concern about Britain’s reliance on the financial services sector, with the UK’s market based financial system six times the size of GDP – forecast to rise to 15 times by 2050.

Frances O’Grady, the general secretary of the TUC, said: “The financial crisis may have ended, but conditions for working people are still dismal, with the most severe real wages crisis for at least 150 years and greatly increased insecurity at work.

“Post-crisis economic growth is well below historic norms, with activity still propped up by consumer spending in spite of the living standards crisis.

“And it is far from clear whether the financial sector is effectively supporting the rest of the economy.”

Last month it was revealed that the Financial Conduct authority had written to 20 of the UK largest asset management companies seeking details of their Brexit contingency plans.

According to FTAdviser's sister paper, the Financial Times, the FCA's letter contains 30 questions about the effect of Brexit on asset managers’ business models, including whether or not UK-based companies are planning to relocate staff or operations to the European Union.

The regulator is also keen to know whether asset managers' Brexit contingency plans will affect their capital base or IT systems and whether they have applied for new licences from foreign regulators.