Why post-Brexit race in financial regulation is a bad strategy

Why post-Brexit race in financial regulation is a bad strategy

There is only one sort of race in the regulation of financial services: to the bottom.

That’s worth remembering in the UK’s sudden hurry to overhaul European financial rules as part of a broader push to show the benefits of the glorious freedom gained by leaving the EU.

No sooner had newly-anointed minister for Brexit opportunities, Jacob Rees-Mogg, expressed concern about the slow progress in producing changes to the Solvency II rules for insurance companies, than there came a promise of “slashing of red tape” from the Treasury.

The insurance framework was “ripe for reform”, to use Rees-Mogg’s words, as evidenced by the fact that Europe is also changing the rules. And it is more restrictive than in some markets such as Australia. But the implication that it is important that Britain go further and faster than its nearest neighbours is a concern.

For a start, the hurry for change glosses over the complexities of what is, after all, insurance regulation. There were two big areas for reform. Everyone broadly agreed that the risk margin, effectively an extra capital buffer, has been too volatile and too high in a low-interest rate environment. A promised cut of 60-70 per cent looks close to the industry’s