Britain’s financial sector mulls future after leaving EU

The financial community is convinced that Britain, whose financial rules are aligned with those of the EU, has no interest in moving too far away from them. (Reuters)
Updated 03 November 2019

Britain’s financial sector mulls future after leaving EU

  • Experts want review of business approach to adapt to changing realities

LONDON:  With a crucial election, Brexit and potential trade deals looming, the future of the beating heart of Britain’s financial sector will be shaped in the coming months.

The specter of a “Singapore-on-Thames” — a highly deregulated British financial sector like the city-state — is the dream of some pro-Brexit financiers, who have criticized European rules that they believe are holding them back.

But regulators do not appear to be in a mood to tear up the rulebook just yet.

“It has been 10 years since the financial crisis and the subsequent reforms we put in place, and now is the right time to review our approach to regulation,” Nausicaa Delfas, from the UK Financial Services Authority, said this week.

“Brexit provides added impetus to look at things again.”

At a London conference on the issue, Barnabas Reynolds, who specializes in UK and EU regulation at law firm Shearman & Sterling, said the regulators should look at everything.

Like many in the City — the financial hub in central London — he did not see “what’s wrong” with the idea of a Singapore-on-Thames.

European financial rules, although designed under Britain’s influence, have restricted the sector’s ability to compete with Wall Street, he added.

Bank of England Gov. Mark Carney thinks differently.

He says there will be “no bonfire of financial regulation” and instead promises a “dynamic” approach to “optimize our efforts without compromising on the level of resilience.”

Most of the financial community is convinced that Britain, whose financial rules are currently aligned with those of the EU, has no interest in moving too far away from them at the risk of being denied access to the vital common market.

“We have been on a trajectory of improving the regulation rather than weakening it,” Iris Chiu, a law professor at University College London, told AFP.

But some sensitive areas will be in the spotlight as soon as Brexit is completed, such as limits on bank bonuses or possible supervision of the booming fintech industry.

“Fintech is one area where the UK is seen as an international market leader” and it will want to defend its position, said Sarah Hall, from “The UK in a Changing Europe” think-tank.

This could mean applying a lighter touch to startups in the sector with regards to transaction traceability, customer data or the origin of funds.

The Solvency II Insurance Directive is also one of the areas where Britain may want to diverge from the EU, particularly on the amount of mandatory capital reserves, she added.

Anti-corruption groups such as Transparency International, whose recent report denounced the billions of dollars of illicit money that passes through Britain and its offshore territories, are still concerned.

They fear backtracking after the efforts of recent years to lift banking secrecy in territories such as the Isle of Man and Jersey, even if others such as the British Virgin Islands are still largely escaping scrutiny.

Paul Fox of Finance Watch also points out that the devil often lies in the detail, and that any adjustments “can give rise to regulatory arbitrage” by investors who take advantage of any glitches in the new rules, at the risk of destabilizing the financial system.

Britain’s Brexit deadline has been pushed back again, this time to Jan. 31 after lawmakers called for more time to scrutinize Prime Minister Boris Johnson’s deal with Brussels.

He is hoping to win a parliamentary majority in early elections called for Dec. 12, which in theory could make getting the deal through Parliament easier.

The political deadlock has led to delays in the ratification and implementation of some financial transparency laws, including on trusts — investment vehicles that are often family owned.

Wealth management is one of the “areas of interest for Labour” if they came to power after next month’s general election, said Sarah Hall.

The Labour party, led by the veteran socialist Jeremy Corbyn, has proposed a radical plan to re-nationalize key industries, and tackle what he sees as a “corrupt system” of wealth and privilege.

Business leaders have already warned it could cost the country dear.

Hall said the ultra-rich have already begun to divest their assets from London and place them outside the country out of fear of a Labour government, which would likely implement further capital controls and raise taxes.

Lee’s death sparks hope for Samsung shake-up, dividends

Updated 47 min 16 sec ago

Lee’s death sparks hope for Samsung shake-up, dividends

  • Shares in the company and affiliates rise; around $9bn in tax estimated for stockholdings alone

SEOUL: Shares in Samsung Electronics Co. Ltd. and affiliates rose on Monday after the death a day earlier of Chairman Lee Kun-hee sparked hopes for stake sales, higher dividends and long-awaited restructuring, analysts said.

Investors are betting that the imperatives of maintaining Lee family control and paying inheritance tax — estimated at about 10 trillion won ($8.9 billion) for listed stockholdings alone — will be the catalyst for change, although analysts are divided on what form that change will take.

Shares in Samsung C&T and Samsung Life Insurance closed up 13.5 percent at a two-month high and 3.8 percent, respectively, while shares in Samsung SDS also rose. Samsung Electronics — the jewel in the group’s crown — finished 0.3 percent higher.

Son and heir apparent Jay Y. Lee has a 17.3 percent stake in Samsung C&T, the de facto holding firm, while the late Lee was the top shareholder of Samsung Life with 20.76 percent stake.

“The inheritance tax is outrageous, so family members might have no choice but to sell stakes in some non-core firms” such as Samsung Life, said NH Investment Securities analyst Kim Dong-yang.

“It may be likely for Samsung C&T to consider increasing dividends for the family to cover such a high inheritance tax,” KB Securities analyst Jeong Dong-ik said. Lee, 78, died on Sunday, six years after he was hospitalized due to heart attack in 2014. Since then, Samsung carried out a flurry of stake sales and restructuring to streamline the sprawling conglomerate and cement the junior Lee’s control.

Investors have long anticipated a further shake-up in the event of Lee’s death, hoping for gains from restructuring to strengthen de facto holding company Samsung C&T’s control of Samsung Electronics, such as Samsung C&T buying an affiliate’s stake in the tech giant.

“At this point, it is difficult to expect when Samsung Group will kick off with a restructuring process as Jay Y. Lee is still facing trials, making it difficult for the group’s management to begin organizational changes,” Jeong said.

Lee is in two trials for suspected accounting fraud and stock price manipulation, as well as for his role in a bribery scandal that triggered the impeachment of former South Korean President Park Geun-hye. The second trial resumed hearings on Monday.

Lee did not attend the trial on Monday, as Samsung executives joined other business and political leaders for the second day of funeral services for his father.