Rishi Sunak has set out his post-Brexit vision for the City of London, hailing a “new chapter for financial services” with a heavy emphasis on green initiatives.
The British chancellor told MPs on Monday that he would grant equivalence to EU and European Economic Area states on financial services, pledged the launch of Britain’s first “green gilt” and launched a review of the listing regime to attract fast-growing technology companies to London.
In his first speech on financial services since taking over as chancellor in February, Mr Sunak vowed that the UK would remain an “open, attractive international financial centre” at the end of the Brexit transition period on January 1.
He said the Treasury would propose a new regulatory approach for “stablecoin” initiatives — involving privately issued digital currencies — and said officials were working on plans for central banks to issue their own digital currencies “as a complement to cash”.
Mr Sunak, arguing that financial services would be a “critical enabler” in attempts by the UK to hit a net zero-carbon target by 2050, announced plans to launch the country’s first green gilts.
The UK government, which will host the delayed COP 26 international climate talks in Glasgow next year, is keen to position itself as a world-leading green finance hub.
Green gilts — or “green sovereign bonds” — are a form of government borrowing to fund low-carbon infrastructure projects and are already used in 16 countries, including Germany and Sweden.
Nicholas Stern, chair of the Grantham Research Institute on Climate Change at the London School of Economics, said the plans to issue green gilts sent “a tremendous signal,” adding: “It is part of a really considered, big push . . . I think the UK is already a leader here, and this is another step along the way.”
The chancellor also announced that the UK would become the first country in the world to make large listed and private companies disclose the threats to their business from climate change by 2025, including banks, insurance companies and pension schemes.
Some of the largest corporations — defined as “premium listed companies” — will have to act much more swiftly. They will have to make better disclosures on how climate change will affect their business from January 1 next year, the Financial Conduct Authority announced earlier.
The move came as the Bank of England said it would launch a climate stress test for financial institutions in June 2021, which had been delayed this year because of the coronavirus pandemic. Banks and insurers in the UK will have to consider whether their capital reserves are commensurate to the climate risks that they face as part of the stress test.
In other areas, the chancellor said a new task force, led by former EU commissioner Jonathan Hill, would review listing requirements and make recommendations early next year to encourage more fast-growing tech companies to float in London.
The task force will examine cutting the minimum free float requirement from 25 per cent. It will also look at raising the £8m threshold for a capital raising above which a company has to produce an expensive public prospectus.
There will also be a “call for evidence” on the UK’s overseas regime to ensure it supports the country’s position as an open global financial centre and a consultation on reforming the regime for investment funds.
Meanwhile, Mr Sunak said he hoped to have the UK’s first long-term asset fund launched within a year to encourage investment in illiquid assets such as infrastructure and venture capital.
With the UK potentially heading for a no-deal Brexit at the end of transition period, Mr Sunak confirmed the UK would recognise many areas of EU financial services as having a supervisory system equal to the UK’s own rules from January. The chancellor said the UK was “acting unilaterally to provide clarity”.
The process, known as equivalence, has been bogged down as the political discussions over the UK and EU’s future trading relationship take precedence.
Regulators on both sides have been unable to grant the market access provisions, with the EU seeking more clarifications from the UK about its future plans to ensure that they would not stray too far from European norms.
The Treasury’s approvals will allow UK-based fund managers and banks to use EU exchanges, investment firms, credit rating agencies, critical markets benchmarks and clearing houses. It added that other areas could be added to the unilateral equivalence regime but was waiting for “clarity from the EU about their intentions”.
Regulation experts said Mr Sunak’s decision to grant unilateral equivalence to EU and EEA states made practical sense. But they warned that the move did not address the bigger issue of the UK being granted equivalence by Brussels, which would allow British companies to sell financial services to EU clients on existing terms.
“This doesn’t deal with the major question of UK firms accessing Europe — it doesn’t take this any further down the road,” warned Tim Dolan, a partner specialising in financial services at law firm Reed Smith.
However, he added that, by making the first move, the UK might encourage EU authorities to reciprocate.
One regulatory lawyer suggested the UK was seeking to depoliticise the topic of equivalence, which had become a sticking point in trade negotiations. “During the Brexit process, it has risked instead becoming a political tool to protect financial services providers from outside competition,” said Peter Bevan, global financial regulations head at Linklaters.
But Labour’s Anneliese Dodds, the shadow chancellor, said it was too late to guarantee market access for one of Britain’s most important sectors.