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By Huw Jones
LONDON (Reuters) – Britain’s ‘big bang’ era financial rules must be updated to show the world the City of London is open for business after Brexit ends access to the European Union a think tank report said Thursday.
The Persons Abroad Exclusion Rules (PEO) were introduced in 1986 as part of the liberalization of the wholesale market that helped the city become a global financial power.
One of the most liberal market access regimes in the world, it allows foreign-based financial firms to serve businesses, brokers and large investors in Britain without licensing or a base in the country.
But complicated by EU rules over the years, now entrenched in UK law since Brexit, have muddied the waters on who can benefit from the regime, the International Regulatory Strategy Group (IRSG) said in a report on Thursday. .
The IRSG, sponsored by the City of London and TheCityUK, which promotes the UK financial sector abroad, says the EPO offers UK financial clients a wider choice of services, although there is no figures on actual activity.
Rachel Kent, a lawyer at Hogan Lovells who helped draft the IRSG report, said the OPE needs targeted changes so that overseas companies can more easily predict when they can serve UK customers remotely and when they need a physical base and UK authorization.
“Digitization and working from home since the pandemic have brought this issue to the fore,” Kent said.
These changes would reassure many European companies that they were welcome to continue operating as a branch in London without having to convert into an expensive branch, Kent said.
U.K. City Minister John Glen opened a public consultation last December on the EPO rules and said Thursday when launching the report that responses showed many did not see the need for a fundamental change.
But there are calls to remove the complexity and clarify the “scope” that determines whether foreign companies need UK clearance.
Glen said there would be a further public consultation in the fourth quarter on the potential changes, in part to determine the right “balance” between open UK markets and the ability to mitigate risks to financial stability, and whether more regulatory powers are needed.
UK Finance Minister Rishi Sunak signaled last week that City’s access to the EU under the bloc’s “equivalency” system is now unlikely, meaning Britain must take steps to keep its financial sector globally competitive.
“Chasing equivalency is something global financial centers shouldn’t be doing,” said IRSG President Kay Swinburne.
(Reporting by Huw Jones; Editing by Hugh Lawson)
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