Big Bang 2.0: creating Singapore-by-the-Thames

When Brexit happened, everyone wondered what the UK government plans would be for the City. Specifically, they wondered whether the plan would be to create Singapore-by-the-Thames. This would mean a low-tax, high-achiever culture that would encourage mass inward investment and recognise that the City offered greater advantages for profit than any other place in Europe or, maybe even, the world.

Well, last Friday, those plans were released and yes, they were right. The UK government plans to create Singapore-by-the-Thames.

The aim is to throw away equivalence and maintenance standards alongside the EU, and create a new path for Britain’s banking sector on its own and, according to Andrew Griffith, the City minister, to make the sector “as internationally competitive as possible”.

Referred to as Big Bang 2.0, in reference to the last City Big Bang under Margaret Thatcher back in 1986, the aim is to drop many of the tight European restrictions around capital requirements, bonuses, solvency and more.

In an interview with The Financial Times  before the announcement, Griffith said that the proposed changes would allow the UK to “hold or take advantage of new opportunities, new innovations, new ways of making markets more liquid and effective”. He promised that the reforms would be the “first out of the block taking advantage of Brexit freedoms”. Other sectors, such as life sciences, will follow.

The article continues:

Griffith highlighted some of the proposals in the 30-point reform plan. They include “retiring” packaged retail investment and insurance products (PRIIPS), consulting on a new central bank digital currency using blockchain technology, and exploring how to accelerate settlement of trades in London so as compete with faster US rivals.

Griffith said the government would launch a consultation of the 2016 senior managers regime but added this would not abandon having “some sort of fit-and-proper person regime” to ensure those in positions of power were accountable and capable. Other areas include a new green finance strategy and plans to give the Financial Conduct Authority power to oversee ratings on environmental, society and governance. New UK long-term asset funds — an open-ended structure that enables investment in illiquid assets — will also be launched.

Griffith said much of the work would be delivered in 2023, setting a timetable far more rapid than is possible in the EU, where rule changes usually take years to agree and implement. Griffith said the UK was “blessed with high-quality regulators” but that “it was right that we lay down the framework and if the framework says that we want to pursue growth and have internationally competitive financial markets, then that’s perfectly right”. He added: “It’s not for ministers to make those operational judgments for them. They make those each and every day.”

The whole theme for me is that, as it is referred to as Big Bang, this is a fundamental change. The original Big Bang was all about updating the City to compete with New York. Wall Street had moved to automated systems, and London determined to follow. A decade later, most open-outcry trading, where buyers and sellers shout at each other, had disappeared and London’s investment markets had moved to connecting on systems rather than on the trading floor.

Today, there are no floors, just systems. These systems are flawed – flash crashes and rogue traders still exist – but it has moved the global markets to real-time connectivity, 24*7 in every major centre of the world. That’s what these reforms want to maintain, and make them twice as fit for purpose as any competitors in Paris or Frankfurt, New York or Dubai, Hong Kong or … Singapore-by-the-Thames.

The government lists the Big Bang 2.0 package as a set of more than 30 reforms, which will “cut red tape” and “turbocharge growth”. The key to the whole package is to maintain London’s position as a pre-eminent financial centre. It may achieve this but, as the BBC point out, it might achieve the opposite as critics claims these changes are a regulatory race to the bottom.

They also note that no one was asking for ring-fencing to be dropped and developing the City as a cryptocurrency centre are also inappropriate for some.

Nevertheless, it’s a brave new world.