Discussing the state of UK-EU regulations post-Brexit, experts agreed that negotiations have taken much longer than anticipated and there are still several issues that need addressing, with the longer-term impact and ramifications potentially taking years to be fully understood.
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When Chancellor Jeremy Hunt introduced the Edinburgh Reforms in December 2022, the move was supposed to offer clarity and certainty on post-Brexit regulation.
Some of the measures set out included replacing the packaged retail and insurance-based products (PRIIPs) regulation with a retail disclosure framework; the introduction of the Long-Term Asset Fund; the UK version of the Short Selling Regulation; and a review of the Senior Managers and Certification Regime (SMCR), among others.
The Edinburgh Reforms included more than 30 regulatory changes for financial services, aimed at repealing and replacing EU laws governing the sector.
The push was somewhat short-lived however, as four months after Hunt set out his reforms, business secretary Kemi Badenoch revealed the vast majority of EU laws would be retained – around 4,000 pieces of legislation – with just 800 potentially being removed.
As a result, Isabel Albarran, investment officer at Close Brothers Asset Management, said some elements of the agreed Brexit regulation still need to be “ironed out”.
“The key thing to realise is that EU regulations will continue to evolve,” she said. “This means that the UK’s Brexit response must also evolve, both for lawmakers and businesses.”
Albarran added “much ink” had already been spilled over the opportunity of cutting tax post-Brexit to make the UK “a more attractive place to do business”, something she argued may not go down well with voters, at a time when the personal tax burden is “high”.
She said: “Financial markets do not appear to have much faith in the success of such an endeavour, with the FTSE All Share index largely going nowhere since 2016.”
According to data from FE fundinfo, that UK index has offered a total return of 61.8% since the beginning of 2016, whereas the MSCI ACWI returned 165.9% over the same period.
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But Nate Thooft, global CIO for the multi-asset solutions team and senior portfolio manager at Manulife Investment Management, argued the macro impacts of Brexit have not been “as dire as many analysts and market participants originally feared”.
At the same time, he acknowledged the “increased uncertainty” in post-Brexit regulation, alongside the prolonged transition and complex negotiations, all of which have “weighted on economic growth”.
“Since 2016, the margin of growth outperformance by the UK has narrowed,” Thooft said.
“Business investment has also stalled since 2016, with Brexit driving uncertainty and negative sentiment in this arena. Prior to Brexit, the UK consistently outperformed its G7 peers when it came to GDP growth.”
He argued it will take “many more years before a full assessment of the long-term impacts and ramifications will be fully understood”.
David Appleton, senior investment director at Brooks Macdonald, added that while the UK market is “open to international competition”, with more than 60% of funds by value being domiciled and regulated in EU countries, the split from the EU has made it harder to compare like with like.
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He said the “patchwork quilt of overlapping EU regulations”, from MiFID to PRIIPs, UCITS and AIFMD, has led to a “confusing mess where two identical products can have wildly different reported costs and charges”.
Appleton continued: “UK retail investors cannot confidently compare the ongoing charges of different products. Price transparency is the basic foundation of any product or service market. You cannot have different versions of the same ‘truth’.”
Such significant differences could badly undermine market integrity, he noted, with firms either unfairly benefitting from or being damaged by this framework, and with consumers being “potentially misled” through “poor quality and misleading information”.
“In a cost-driven market like ours, this really matters,” he said.
Appleton consequentially argued for the creation of “clear, consistent technical guidance on cost disclosure that is applied across the value chain, while addressing key areas of divergence with observed international market standards”.
“Much has been written about the need to improve the competitiveness of the UK capital markets; reversing this counterproductive own-goal would be a good start.”
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