Britain to allow banks to take on more risk to stay competitive

© Reuters. FILE PHOTO: Director of the Number 10 Policy Unit Andrew Griffith walks outside 10 Downing Street, in London, Britain May 25, 2022. REUTERS/John Sibley

By Huw Jones, Iain Withers and Lawrence White

LONDON (Reuters) -Britain will change its rulebook to allow banks to take more risks to help to keep the City of London’s status as a leading global financial centre, a government minister said on Tuesday.

The City of London was largely cut off from the European Union by Brexit and faces greater competition from centres like Paris and Frankfurt, as well as longstanding rivals like New York and Singapore.

The EU will next week set out a new law to force banks in the bloc to shift some of their euro derivatives clearing from London to Frankfurt.

City minister Andrew Griffith said a new financial services bill now being approved in parliament will bring financial rule books up to date, make regulators nimbler, cut insurance capital buffers, though maintain high standards.

“The overall thrust of things is to allow more risk… You get reward from taking risks, you shouldn’t be risk off, we just need to manage that in an appropriate way,” Griffith told a Financial Times event.

“We can make the UK a better place to be a bank, to release some of that trapped capital over time around the ring fence,” he added.

Banks have lobbied to ease rules that force them to ring fence or insulate their retail arms with a bespoke cushion of capital, a set of rules the Bank of England has vigorously defended.

The finance ministry has promised a “Big Bang 2.0” shake up of financial rules to boost the City’s global competitiveness, though Griffith said he would be “pragmatic” and “selective” when it comes to scrapping any EU-originated rules.

The focus will be on keeping Britain an open financial market which allows skilled labour to move in and out, reducing “friction” through proportionate rules, and “alignment” with regulation elsewhere, wherever possible, Griffith said.

Griffith reiterated government ambitions to make Britain a global hub for cryptoassets and their underlying blockchain technology as an evolution of the UK’s existing role as a global fintech centre.

“We see big opportunities in fiat-backed stablecoins. That can be a really important mechanism for payments going forward,” Griffith said.

The crypto market has been through a turbulent few weeks following the collapse of the FTX crypto exchange, which has hit other crypto businesses.

UK DISCOUNT

Britain’s reputation as a stable location for financial services took a severe knock in September when a “mini-budget” led to turmoil in bond markets, forcing the Bank of England to intervene.

Charlie Nunn, chief executive of Britain’s biggest domestic bank Lloyds (LON:LLOY), told the FT event that while new prime minister Rishi Sunak had calmed markets, the period of political chaos had had a lasting effect on investor appetite.

“There is nervousness about the UK overall,” Nunn said, referring to the period of political instability and concern over the nation’s finances. “The UK still has that discount.”

Nunn said he welcomed increased emphasis on the City’s competitiveness, adding that it had not been a focus over the last decade.

Nunn said that in response to Britain’s growing cost of living crisis Lloyds had begun offering struggling mortgage borrowers interest-only or lower cost products to help them cope, starting three to four months ago.

Alison Harding-Jones, head of EMEA M&A at U.S. bank Citi, told the event that Britain remained a strong place and open for business.

“I hope what we’ve seen over the course of the past few months is a wobble that doesn’t make a difference in the strength of the UK, but we will have to see,” she said.