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.

Alibaba confirms huge Hong Kong public listing worth at least $13bn

Updated 15 November 2019

Alibaba confirms huge Hong Kong public listing worth at least $13bn

  • Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade
  • Alibaba Chief Executive Officer said the group wanted to participate in Hong Kong’s future

HONG KONG: Chinese technology giant Alibaba on Friday confirmed plans to list in Hong Kong in what it called a $13 billion vote of confidence in the turbulent city’s markets and a step forward in its plans to go global.
The enormous IPO, which Hong Kong had lobbied for, will come as a boost for authorities wrestling with pro-democracy protests that have tarnished the financial hub’s image for order and security and hammered its stock market.
Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. The number eight is considered auspicious in China.
Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade after insurance giant AIA raised $20.5 billion in 2010.
Alibaba had planned to list in the summer but called it off owing to the city’s long-running pro-democracy protests and the China-US trade war. The US and China are now working on sealing a partial trade deal.
Daniel Zhang, Alibaba Chief Executive Officer, said the group wanted to “contribute, in our small way, and participate in the future of Hong Kong.”
“During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” he said.
The firm’s shares are already traded in New York. A second listing in Hong Kong is expected to curry favor with Beijing, which has sought to encourage its current and future big tech firms to list nearer to home after the loss of companies such as Baidu to Wall Street.
In the statement, Zhang said that when Alibaba went public in 2014 it “missed out on Hong Kong with regret.”
Mainland authorities have also stepped up moves to attract such listings, including launching a new technology board in Shanghai in July.
The listing comes after the city’s exchange tweaked the rules to allow double listings, while Chief Executive Carrie Lam had also been pushing Alibaba’s billionaire founder Jack Ma to sell shares in the city.
“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said.
It has long been expected to launch a multibillion-dollar stock listing in Hong Kong but appeared to postpone the offering because of political and economic turmoil.
Hong Kong’s key Hang Seng Index rose 0.48 percent in morning trading following the announcement
Chinese shoppers set new records for spending on Monday’s annual 24-hour “Singles’ Day” buying spree, despite an economic slowdown in the country and the worries over the US trade war.
It said consumers spent $38.3 billion on its platforms over that stretch, up 26 percent from the previous all-time high mark set last year.
Alibaba also said it saw record amounts of cross-border sales, underlining its plans to expand globally.
“Globalization is the future of Alibaba Group. We firmly believe the marriage of digital technology and commerce will bring about unprecedented change that will not be limited by borders,” Zhang said.