18/04/18

UK: MiFID II Author Warns Brexit Could undo Years of Financial Reform.

(Financial News) -- A leading European politician who spent the best part of a decade helping to shape post-crisis financial regulation has warned that Brexit risks reversing much of what makes markets safer today.

MEP Kay Swinburne was speaking at an event in London where she and other high-profile financiers — including the chief executive of UK bank Standard Chartered and vice-chairman of Jupiter Fund Management — were discussing the state of financial markets 10 years on from the collapse of Lehman Brothers.

Swinburne was a key figure in crafting the European Union's revised Markets in Financial Instruments Directive, which came into force in January and brought huge change to the way equities, bonds and derivatives are traded across Europe in a bid to make markets more secure and protect investors.

But she told attendees at the conference, which was hosted by Michael Spencer's trading and technology firm NEX Group, that the UK's impending split from the EU was a threat to more secure financial markets.

Swinburne, who also worked on rules that made it mandatory for swathes of privately-negotiated derivatives to be routed through clearing houses, said: "All the work we’ve done over the last decade, fixing the financial crisis, making the global system work, making that regulatory co-operation a day-to-day activity, is in danger of being lost."

Politicians in Westminster and Brussels are trying to negotiate a trade deal that will ultimately determine the kind of access financial firms in the City of London have to the EU after Brexit.

The EU has indicated it will seek enhanced so-called equivalence — whereby it recognises some UK financial regulations as being as robust as its own — to allow certain access to be maintained. The City, however, has pushed Prime Minister Theresa May's government to fight for a bespoke Brexit deal that will maintain the status quo.

Swinburne warned: "Brexit negotiations are at a very difficult point, where either we have a full financial services chapter in a free-trade deal going forwards and we move on from all the pettiness that is emerging... or we have nothing."

Speaking at the same event, Standard Chartered CEO Bill Winters said the global financial system and the banks operating in it were now "much safer" than in the years leading up to Lehman's 2008 collapse.

Winters, a former co-head of investment banking at JPMorgan who worked closely on integrating Bear Stearns businesses in 2008, was a contributor to the UK government's Independent Commission on Banking, launched after the crisis to bring structural change to the country's banking system.

The commission's recommendations in 2011 led to the introduction of new legislation — including the ring-fencing of riskier investment banking operations from retail banks, set to kick in next year.

But Winters warned on Tuesday that there was still a "big unregulated segment of the financial system that is accumulating a lot of the risks that we saw in the banking system in the past". He said the next crisis could come from "the non-banking financial sector, where leverage has ways of sneaking in in surprising ways".

Edward Bonham Carter, vice-chairman of Jupiter Fund Management, added that the financial services industry was still fighting to regain the trust it lost a decade ago. "There has been a sea change in how most people view the capitalist system, whether we like it or not," he said. "I think there's a significant element of people who now view expert with scepticism. There's been a huge decline in trust in financiers, people in our sector, but sadly to say politicians as well."