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Some Sense At Last About City Regulation

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Yes, sure, it’s nice that the pinstripes in The City get to make money off servicing the financial needs of Johnny Foreigner. But that ain’t actually the point of the place at all. Therefore it’s nice seeing someone actually in that power structure pointing out that it ain’t:

Britain should abandon full access to EU financial markets if it means becoming a regulatory rule-taker, the Bank of England governor has said.

Quite so. We never do quite know what idiocy people like Sven Giegold (a German and Green MEP, one of those responsible for throwing some financial scraps Richard Murphy’s way) are going to come up with next. He is, for example, a ferocious supporter of a financial transactions tax. The major effect of which would be to make pensioners poorer. Having to put up with whatever stupidity such people will inflict upon European Union citizens is not the way to a better and more prosperous world.

However, Andrew Bailey said Brussels’ demand that the UK submit to its regulations was “problematic”, in the clearest sign since the agreement that the City will not receive the “equivalence” decision needed to trade in EU markets.

“If the price is too high then we can’t just go for it whatever,” he told the Treasury select committee. “I strongly recommend that we don’t become a rule-taker. If the price of that is no equivalence then I am afraid that will follow.”

Exactly and absolutely so.

There are benefits to following that EU rule book. That the pinstripes can continue to make money out of servicing J. Foreigners’ financial needs not just the most prominent but the only one. This does also carry with it the truth that this is of benefit to J. Foreigners, in that she gets her financial needs seen to. Good and hard Fnarr, Fnarr.

But there’s a price that comes with this. Which is putting up with whatever idiocy Sven decides to impose next. And at some point that price becomes too high. Like any other set of costs and benefits there’s a tipping point from “yes, why not?” to “here’s that Anglo Saxon Wave you’ve been itching for”.

The thing that needs to be understood, the thing that isn’t well enough understood, is that the benefits of the rule adherence flow to those foreigners, who J. though they are get their needs seen to, and the pinstripes who make their profit. The costs fall upon us users of the domestic financial system that has to follow the barking excrescences of the German, Green, MEP. There will therefore always be that imbalance, where the concentrated interest looking for the profits insists that we should ignore those costs imposed upon us.

That is, the political impetus will always be to too much conformity with EU rules. The actual correct answer is that we do stuff as we wish to do it. If they then desire to buy what we produce well, good. But we shouldn’t be doing what we don;t want to do so that they will buy – especially if the costs fall upon those who aren’t making the profits from the system.

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5 COMMENTS

  1. Much of servicing the EU can be obtained with a bit of financial structuring, so it is only the incremental part that you can’t retain by changing your process which is the benefit. On that basis the regulatory cost of equivalence is never going to be worth paying. Especially as most banks decided not to bet on the content of any EU-UK deal and have already put in place workarounds.

  2. If I understand correctly, this is largely about retail financial services (wholesale stuff takes place whether governments want it to, or not). And the retail stuff is largely banking – despite endless banging on about ‘four freedoms’, the chances of Hermann in Berlin ever being able to insure his car using Direct Line are vanishingly small. And retail stuff needs a local presence – a sales operation, places on the high street (even if only an ATM) etc. So you might as well set up a local operation that complies with all the local rules.

    What am I missing?

  3. Another point.
    It may be that following EU rules will help the City do more business in the EU.
    It does not follow that following those same rules will help the City do more business with the rest of the world
    So even if we take the weird view that City profits trump all other considerations, it is far from clear that following EU regulations is as good idea.
    Bear in mind the EU is ever declining as a percentage of the world economy, it will soon be more important to deal with the foreigners who aren’t EU than those that are- if it isn’t already.

  4. Quentin,

    I’m not (quite) in Berlin, and am not called Hermann, but when I did own a car, it was indeed insured by Direct Line.

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