Alvarez and Marsal

Global Regulation Clouded After Trump and Brexit

The UK's vote to leave the European Union and Donald Trump's surprise victory in the US presidential election have delivered heavy blows to rulemakers attempting to reform financial markets across the globe, according to City executives.

The vast majority of more than 80 delegates at an FN breakfast briefing on the future of financial regulation on November 23 failed to express any optimism about the regulatory environment in the wake of the two events.

David Wright, partner at consultant Flint Global and former secretary general of

the International Organization of Securities Commissions, said two pillars of UK foreign policy had been shaken. He said even before Trump’s victory the situation was like Dante’s Inferno and the “nine concentric circles of Hell”, and that following the next few years would be “characterised by massive uncertainty”.

Trump’s pledge to get rid of Dodd-Frank, the US post-crisis reform that overhauled derivatives trading, would pose a “very serious matter” in a global context, Wright added, as such a move would threaten global rulemakers’ attempts to harmonise financial regulation in the wake of the financial crisis.

Caroline Meinertz, a partner in banking and finance at Clifford Chance, said Trump’s broad pledge to dismantle Dodd-Frank should be taken with a “pinch of salt”. However, she said “it is likely” that Trump will do something to amend the regulation. That could involve a potential reversal of the Volcker Rule, which limits the ability of banks to make money through proprietary trading.

How potential deregulation in the US and Brexit negotiations will affect the City’s status as a financial hub was also discussed.

Meinertz said it was important to consider the outlook for global financial regulation on a sector by sector basis. She said: “From a securities regulation perspective, it seems to me unlikely that Esma [The European Securities and Markets Authority] will have any meaningful market to look after post-Brexit.”

But some warned the UK’s position was also perilous and said it could be foolish for the country to rely on so-called equivalence – which allows financial firms to interact with the EU as long as they are deemed to have a similar regulatory regime – in the new environment.

Paul Sharma, co-head of financial advisory practice at Alvarez & Marsal and former deputy head of the Prudential Regulation Authority, warned against assuming that equivalence rules will remain the same in the wake of Brexit. He said: “They are the way they are in large part because the UK was at the European negotiating table shaping those rules.”

He added he expects the rules to develop in a way that narrows their value and puts up bigger hurdles for them to be useful.

Nor does Sharma expect a deal that caters for financial services on the UK’s exit from the EU. “The reality will be a long period of hiatus where there is no special treatment for the UK, then followed by some kind of a settlement in the longer term.”

Some said it was essential that the UK and the EU work together to ensure New York was not the ultimate beneficiary of Brexit.

Peter Bevan, global head of financial regulation at Linklaters, said the City promotes jobs and growth across Europe, a cluster of expertise that enables the creation of financial products for global markets.

But Sharma said the likes of Esma, the European Banking Authority and the European Central Bank, as well as other EU member states, would be better placed than the UK to persuade France and Germany of this.


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