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Plan to overhaul rules for London’s capital markets

Brexit deal

Ministers are planning a more wide-ranging review of UK financial markets rules to improve the City’s competitiveness against global rivals

The Treasury is drawing up plans to overhaul rules that have governed London’s capital markets, looking to counter fears that the City is losing its place as a global financial centre after Brexit.

The proposals are expected to largely target Mifid II, the EU’s main financial services legislation that set tough rules to improve markets after the 2008 crisis, according to two people with knowledge of the plans.

Introduced in 2018 to bring in more transparency and competition, executives have complained that large sections of Mifid II have had only marginal benefit and created layers of red tape.

Ministers are also planning a more wide-ranging review of UK financial markets rules to discard other EU standards and improve the City’s competitiveness against global rivals.

Chancellor Rishi Sunak has argued that the UK can regulate financial services, which contributed £76bn in tax receipts in 2019, more effectively than Brussels.

Officials said the reforms were needed to capitalise on the UK’s ability to set its own rules outside the EU. The UK’s Financial Conduct Authority (FCA) cannot make many changes as the standards are set in law.

The Treasury will launch a consultation on a set of detailed policy proposals this summer, with legislation likely to be ready before the end of the year.

A Treasury spokesperson said the government wanted “to make the UK the most open and dynamic financial centre in the world [and] reduce burdens for firms whilst maintaining high standards of regulation”.

Changes could include scrapping EU rules that determine the share-trading obligation. The standard forced €8bn a day of EU share trading out of London, and mainly to Amsterdam, in January after the UK left the bloc.

Officials could also remove the restrictions on the amount of trading that investors can execute on private marketplaces known as “dark pools”, change transparency requirements for stock and bond markets, and revamp position limits or the amount of trading that can be done in one commodity.

The government wants to hand the FCA powers to shape future rules, rather than continue to make changes by parliamentary legislation. The intention is to give the FCA more flexibility to improve UK competitiveness, said one person familiar with the plans.

As part of the review, the government is expected to launch a broader, exploratory consultation aimed at reaffirming London as a world financial centre, including bolstering its position as a hub for derivatives trading. Although the activity has traditionally been a mainstay of the City, some of it has shifted to New York and Amsterdam since Brexit.

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