46 Britain The EconomistFebruary 6th 2021
2 en they know what our regime is. It’s their
regime.” But so far the euhas granted Brit-
ain only time-limited equivalence for
clearing Irish securities and the operation
of central clearing counterparties. Negotia-
tions are continuing, and the Treasury is
keen for a deal, but the eudoes not seem to
be in a hurry. A March deadline already
looks likely to slip.
Some suspect that the euis going slow-
ly on purpose, because uncertainty may
encourage business to flow from London to
European capitals. William Wright of New
Financial, a think-tank, reckons that the
outflow from London over the last four
years will “embolden Europe to push hard-
er to repatriate more business”.
The eusays it cannot make a decision
on equivalences until Britain makes its ap-
proach to divergence clear. The British gov-
ernment has talked in vague terms about
deregulation—Rishi Sunak, the chancellor
of the exchequer, referred to “Big Bang 2.0
or whatever” in a newspaper interview—
but has not committed itself to divergence.
A crucial question is what the euwould re-
quire of Britain in exchange for equiva-
lence. “If it means targeting the same broad
outcomes of well-functioning markets
that is fine,” says an insurer. “But we can’t
agree to line-by-line regulation by email.”
Big firms in the City are keener on
equivalence than divergence. Europe, the
source of a third of the financial-services
industry’s export business, is important to
them, and European rules, which Britain
helped to shape, have served them well. For
global firms, a common regulatory system
between Britain and the eu makes the
world a simpler place.
Compared with global City firms, those
headquartered in Britain are less set on
equivalence. They are more concerned
about what will happen when, uncon-
strained by British policymakers, Europe’s
more interventionist instincts are brought
to bear on regulation.
Over to the west of the City in Mayfair,
where most of London’s hedge funds are lo-cated, opinion is heavily in favour of di-
vergence. Hedge fund managers’ views,
shaped by a fast-moving world in which
regulation is often a drag on innovation,
tend to be more eurosceptic than those of
the bosses of global firms located in the
City and Canary Wharf. While most City
figures wanted Britain to remain in the eu,
high-profile hedge-fund bosses such as
Crispin Odey and Sir Paul Marshall helped
finance the Leave campaign.
Unlike banks, which do a lot of business
in Europe, hedge funds raise most of their
capital in Asia and the Middle East. They
are lightly regulated, and plan to stay that
way. “The only times the euhas affected my
business is when they have tried to destroy
it,” says a hedge-fund manager. The alter-
native investment sector is fairly small—it
pays less than £5bn a year in tax and em-
ploys around 40,000 people—but its big
cheeses are generous Conservative Party
donors, so it has an outsized political voice.
The hedge funds’ particular bugbear is
the eu’s Alternative Investment Fund Man-
agers Directive, which provides a frame-work for regulating them. Many want it
dropped, and the sector deregulated by, for
instance, lowering authorisation require-
ments and dropping disclosure rules. But
while such a step would go down well in
pricey Mayfair eateries, those who dine in
marginally less expensive City restaurants
fear it would invite retaliation from Europe
and thus make their lives more difficult.
The hedge funds are not alone in want-
ing divergence. Many in the insurance in-
dustry believe that a review of the Solvency
II regulatory regime focusing on the needs
of British firms could lead to some margin-
al improvements. Smaller challenger
banks hope that Britain can tweak the pru-
dential framework to suit them better.
For sectors such as manufacturing and
agriculture, Britain must choose whether
to align with European or American regula-
tions. In financial services it has more
clout. The euwithout Britain is not a huge
force in finance (see chart). Its share of the
overall business has fallen from a fifth to
13% as a result of Brexit, compared with
Britain’s 8% share. In many areas, Britain’s
share is bigger than that of the eu27. Now
that it no longer needs to agree rules with
its old European partners, Britain can make
deals with countries like America, Singa-
pore, Switzerland and Japan that offer a
path to capturing fast-growing new mar-
kets such as fintech and carbon trading and
for setting the rules that determine how
those businesses are done.
The question of whether Britain should
go for equivalence will probably be settled
not in the City, Mayfair or Westminster but
in Brussels. The eu’s sluggish approach to
negotiations suggests that it sees no great
advantage in offering Britain equivalence
deals on terms that are likely to be accept-
ed. If that is so, the City will have to adapt to
a new world—as it has done before, and
will no doubt do again.^7Pointing in the wrong directionSources:MorganMcKinley;EuropeanFundandAssetManagement Association;EuropeanCentralBank;Dealogic *Of 22 metrics2520151050
2017 18 19 20Britain, new financial-services jobs, ’000Average*Investment funds by
domicileAssets under
management by locationFX tradingDerivatives trading100806040200Financialactivity,byregion,selectedmetrics,2018, %EU27 RestofworldBritain United States Asia PacificFor 99 of his 100 years, Captain Sir Tom
Moore was unknown to most of his
compatriots. But when he died on
February 2nd the prime minister and the
queen paid tribute to him. He came to
fame last year when his effort to raise
£1,000 to support health workers by
walking 100 laps of his garden before his
100th birthday caught the public
imagination. He raised £33m.
Sir Tom touched a couple of soft British
spots. One is a love of the underdog: his
feat was humble yet brave. The second is a
fascination with the second world war, a
common reference point for Britons
struggling to make sense of a crisis that
left them simultaneously terrified and
bored. Sir Tom, who served in Burma, was
one of a dwindling generation that linked
present troubles to past conflict.Spirit of the age