By Ellesheva Kissin From GBRR

A government taskforce formed to revamp UK regulation post-Brexit has recommended dumping EU rules for a less prescriptive common law approach – including a more aggressive transition to open banking, a hybrid CBDC and a “graduated” capital requirements regime for challenger banks.

The Taskforce for Innovation, Growth and Regulatory Reform (TIGRR), formed on the order of UK prime minister Boris Johnson in February and led by Iain Duncan Smith, a former leader of the ruling Conservative Party and a pro-Brexit campaigner, delivered its report on 16 June.

The three-person task force includes Duncan Smith’s fellow Conservative MPs Theresa Villiers, the UK’s former environment secretary and a former Member of the European Parliament, and George Freeman, a member of liberal conservative pressure group Bright Blue.

The report advocates moving away from what it calls the EU’s “code-based” approach to financial regulation to a common law approach a “principles-based” common law framework.

The report singles out MiFID II position limits under the Second Markets in Financial Instruments Directive, which it says should be amended to allow more flexibility. It also says central counterparty clearing house (CCP) margins should be adjusted on a more discretionary basis instead of what it labels “prescriptive” calculations.

The fintech “crown jewel”

TIGRR names fintech  the “crown jewel” of the UK’s financial sector but says the area was hampered by a “tangled web” of EU-derived regulation.

Regulatory approaches to fintech need to enable growth and competition as the sector scaled up, the report says. It proposes an Australian-style approach to open data, advocating for a speedy shift to open finance to bring data on investments, savings and cash into one database.

It takes issue with the “not concrete” timeline suggested by the UK’s Financial Conduct Authority for the transition to open finance, which would await legislative proposals from the government. It says this is “far too slow” and would lead to the UK falling behind Australia in the transition. It complains that Australia, “which started out on its Open Banking journey three years after us, would have a more developed open data ecosystem than ourselves”.

It also adds that “at the very least”, the UK’s nine-largest retail banks “should be compelled to open up data for their non-invested savings, credit and mortgage products” through application programming interfaces.

The report also calls anti-money laundering (AML) regulations disproportionate when it comes to open banking services, whose money laundering risks it argues are so low as to be “virtually non-existent”.

Open banking services such as payment initiation and account information services should not be slowed down by AML regulations, it argues, saying the UK’s money laundering regulations should be amended accordingly.

The report also adopts proposals from pro-Brexit think tank CityUnited for a British central bank digital currency (CBDC), plans for which are already underway.

It recommends the hybrid model whereby the currency represents a claim on the central bank, with intermediaries delivering the retail payments.

“The involvement of payment services providers would allow for innovation and speed, which would allow the UK to be the first to introduce such a hybrid retail model,” the report argues. “Interoperability between the CBDC and other forms of money is essential, if we hope to encourage widespread consumer adoption.”

The recommendation also refers to the “geopolitical danger” of China’s digital currency plans, and advocated swift parallel development of the UK CBDC to counter it.

TIGRR also complains that regulators neglect challenger banks by subjecting to the same regulations and fixed costs as their biggest competitors, resulting in “one of the most concentrated retail banking sectors in the world”.

It calls for capital and liquidity requirements to be reformed into a “graduated” regime that allowed banks to move through levels of regulation as they grow.

“Adding more regulation is easily done. Removing it is harder,” the report says. “Leaving the EU offers opportunities both to shed unnecessary EU-derived legislation, and to frame a UK approach to regulation with three aims in mind boosting productivity, encouraging competition and stimulating innovation.”

Freeman, in a blog on the Conservative party’s website after the report’s publication, reiterated his support of the report’s recommendation to reduce regulation. “Our critics assert that the only regulatory dividend is in abolishing workers’ rights and environmental standards in a ‘race to the bottom’. They are profoundly wrong.”

A government statement said that it would consider and respond to the report’s recommendations.

For more on this story go to: GBRR