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‘Restoring UK Law: Freeing the UK’s Global Financial Market’

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UK Must Renounce Damaging Legacy of EU Law
Politeia’s new proposals show how the City and UK economy will benefit from return to Common Law tradition

                    • EU legal legacy stifles growth and innovation, and must go.
                    • Restoring UK’s common law tradition will help businesses to innovate.
                    • UK regulation must change to support UK law.

PDF: Restoring UK Law: Freeing the UK’s Global Financial Market
Publication date: Monday 8th February

The UK has taken back control of its lawmaking, but the legacy of EU law remains.  Unless the inheritance  is renounced, it could undermine the success of the City of London, a hub for worldwide financial services, and a centre for global trade, says Politeia’s next publication.

In Restoring UK Law: Freeing the UK’s Global Financial Market, the author, Barnabas Reynolds, who leads his City law firm’s financial advisory and regulatory practice, proposes that much of inherited EU law must be removed. He points out that:

  • EU law has superseded much of the UK’s own common law tradition, which encourages innovation and entrepreneurship, and is transparent and predictable. The EU’s law is code-based and follows Franco-German models, going against the common law and Scots law systems.
  • EU law is restrictive and protectionist.  It stifles innovation, undermines entrepreneurship and has added layers of regulation, bringing uncertainty to businesses.  In financial services, the EU’s method has led to a blanket of law across the sector, which stifles inventiveness and free enterprise. The rulebook is prescriptive, inflexible, opaque and voluminous. One legislative measure alone, “MiFID II”, has 1.7 million provisions.

Economic research shows that the common law system, used in the UK, leads to higher growth. That, says the author, is because UK law is predictable and generally permissive of commercial activity. It supports businesses and seeks to buttress new and original products and service offerings. Reynolds argues that, accordingly:

  • Financial law and regulation must be re-focused to adopt traditional UK methods (no longer applying the EU rulebook), under judicial supervision.
  • The regulators should be subject to Parliamentary oversight and held accountable for their rulings, with their rulings subject to scrutiny and open to challenge in the courts.
  • The UK regulator’s role must change to reflect the common law basis for financial services law.

Reynolds proposes the following principles for UK regulation in the future: –

  • Predictability, clarity and transparency
    • Ensuring predictability in financial regulation through clearly written rules; judicial-style drafting for regulatory decisions; the enforcement of rules only when their application is predictable.
    • New statutory provisions under which regulators will operate – where possible requiring clearly drafted rules, and avoiding unnecessary intervention.
    • Restricting regulators’ interventions to those only where necessary – institutions should be left to apply their own commercial judgement under UK law and allowed so far as possible to run the risk of commercial failure with adequate safeguards in place for their customers.
  • Oversight, supervision and accountability of regulators
    • A new framework for the oversight of the UK’s regulators under Parliamentary supervision assisted by an independent panel of experts (including legal experts) to oversee the day-to-day actions of the regulators, with the power to require attendance and information from the regulators.
  • Challenging the regulators’ decisions in the courts
    • Ensuring that decisions of the regulators can be challenged adequately in the Upper Tribunal and the court system, with the lower-level courts used for smaller decision-making in a way that provides for and develops judicial precedent; Removing the disincentives to businesses from seeking a court decision and ensuring judicial oversight of, and a more legalistic basis for, decision-making by the Financial Ombudsman Service; Allowing businesses (and not just consumers) to bring private claims in court for regulatory breaches;
    • Constraining the use of rule waivers, a process by which the regulators grant dispensation from the application of their rules, by making the procedure by which they do so subject to greater judicial oversight, so that they are only used in situations which are truly one-off.

Notes to Editors:

  1. Established in 1995, Politeia is an independent, non-partisan think-tank providing a forum to discuss economic, constitutional and social policy with a particular focus on the role of the state in people’s lives.
  2. Restoring UK Law: Freeing the UK’s Global Financial Market by Barnabas Reynolds will be published by Politeia on Monday 8th February 2021. A pdf of the publication is available here.
    3. Barnabas Reynolds is a partner of Shearman & Sterling LLP and leads the firm’s global financial advisory and regulatory practice. He specialises in UK and EU law and financial regulation and co-edits Sweet & Maxwell’s Journal of International Banking Law and Regulation. He has been a member of the group of lawyers advising MPs on Brexit, having originated and developed the UK’s proposed model for post Brexit financial services trade. His publications include Blueprint for Brexit (2016); A Template for Enhanced Equivalence: Creating a Lasting Relationship in Financial Services between the EU and the UK (Politeia, 2017); The Art of the No Deal: How Best to Navigate Brexit for Financial Services (Politeia, 2017).

For his other proposals developing the options for the financial sector industry after Brexit click here

Barnabas Reynolds

Barnabas Reynolds is a partner at Shearman & Sterling LLP and Global Head of the Financial Services Industry Group. He is the author of Restoring UK Law: Freeing the UK’s Global Financial Market, (2021) and co-author of The Lawyers Advise: UK-EU Trade and Cooperation Agreement – Unfinished Business? (2021).

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