High in the skyscrapers that have taken root in its warren of medieval streets, City of London grandees are plotting a post-Brexit regulatory revamp to rival New York.

The City, as London’s traditional financial heartland is known, has retained little direct access to the European Union financial market since Britain fully left the bloc in December.

And with little sign of that changing, Britain is now rewriting inherited EU laws that typically combined retail and wholesale markets, making them cumbersome to amend quickly.

What has emerged is a twin-track approach, with a new chapter of flexibility for wholesale financial trading alongside attempts to toughen protection for consumers.

Although Brexit delivered less of a hit than initially feared and London has consistently remained the second largest global financial center after New York, it cannot rest on its laurels.

So far it has set out reforms to ease share listing and trade reporting rules, tweak insurance regulation and scrap curbs on the anonymised share trading favored by big investors.

At the same time, London is looking to toughen the ‘duty of care’ on banks selling pensions or home loans after a string of mis-selling scandals and an expected rise in consumer confusion over financial products in the wake of the coronavirus pandemic.

“We have all become used to a regulatory pendulum that swings one way or the other, but at the moment there are two – a wholesale one and a retail one,” Chris Woolard, who was interim CEO of the Financial Conduct Authority last year, told Reuters.

“We are seeing the removal of frictions but in retail, a continued tough – and in some cases, tightening – stance on consumer protection,” added Woolard, who is now EMEIA financial services regulation leader at consultants EY.

Wholesale Change

Wholesale finance became a priority after billions of euros in share trading left the City for Amsterdam in January, while the British capital continues to lag New York in tech listings.

“The UK Treasury and Financial Conduct Authority have created an environment in the UK where you can trade European stocks in a more open way that markets want to trade in,” Michael Horan, director and head of trading in EMEA for BNY Mellon’s Pershing, told Reuters.

While Jack Inglis, CEO of hedge fund industry body AIMA, said the aim was to simplify rules and not resort to light-touch regulation or competing on tax incentives, the developments in London are being closely watched in Brussels.

Conor Lawlor, director for capital market and wholesale at banking body UK Finance, said reforms proposed so far can add up to more than tweaking around the edges if fully implemented.

“Many of the suggested proposals in the wholesale market review represent proposals the industry has put forward to government,” Lawlor said.

Britain’s finance ministry said it has set out a comprehensive roadmap and was already delivering a more open, greener, and technologically advanced financial sector.

“Coordination will be crucial to drive through reforms, and help firms plan for the future,” the ministry said, adding that its “grid” of upcoming rules will help achieve this.

Existential Risk

“It’s a surprisingly ambitious agenda – they have grasped that London, and the UK, will generally need to fight for its global position,” Jonathan Herbst, global head of financial regulation at Norton Rose Fulbright law firm, said.

Bespoke rules for professional investors would become a “really important differentiator,” Kay Swinburne, vice chair of financial services at KPMG and a former member of the European Parliament, added.

While regulation is a big part of the overall drive towards financial competitiveness, UK Finance’s Lawlor said that the tax regime also needed to be competitive and UK-based firms needed access to global talent.

“If you can turn the dial on all three of those variables the UK will give itself the greatest chance of strengthening its competitive footing,” Lawlor said.

Bespoke capital requirements for wholesale banks would also help, an international banker added.

Alasdair Haynes, CEO of Aquis Exchange, said the pieces for improving wholesale markets were on the table.

“What worries me is can we actually get that jigsaw put together. To do that you need one body, be it the Treasury or a regulator, focusing on it – it has to be joined up and executed,” Haynes said.

For some a key piece is still missing.

Daniel Hodson, former CEO of the LIFFE futures exchange and campaigner for Brexit, said a central bank digital currency for making payments in the wholesale market must be the priority.

The Bank of England has yet to make a decision on this.

“If you don’t do this and let the continentals get ahead, then they will start to undermine the cement … which is clearing, settlement and transactions,” Hodson said.

“If that starts unraveling, then you are going to start seeing the decision-makers going and it’s really an existential risk,” he added.