The UK’s opposition leader Jeremy Corbyn recently told the crowds at Glastonbury to “build bridges not walls”. However, this is very much not the trend in political circles these days. Talk is definitely more about raising the drawbridge than laying it down. Brexit (and Donald Trump, naturally) exemplify the trend towards isolationism away from globalism.
Whichever characters make up the world’s political leadership these days – and in 2017 this is an increasingly tough act to predict – you tend to hope that the technocrats working quietly behind the populism provide an element of smoothness and continuity that their changeable, populist political masters do not exemplify. Regulators and civil servants, in particular.
Alas, this cannot be counted upon. It seems regulators are as human as the rest of us. Take the opinion piece which came out in July from EU-level regulator Eiopa. Yes, there was a warning for insurers – to not cut corners on setting up their Brexit subsidiaries in the EU. But there was also an explicit warning to regulators within the remaining 27 EU member states – not to cut corners, either.
This is because the EU’s members have been queuing up to welcome London market firms seeking new bases to maintain their single market passport access to do business across the EU after Brexit. Insurers have had to presume that the worst will happen in 2019 and that whatever deal is cut between Brussels and London will leave the City out in the cold.
Luxembourg is, so far, the leader for insurers looking to set up shop. It has a track record for private banking and shadowy investment funds. The city-state has already had to dismiss claims it engages in regulatory arbitrage to attract companies away from domiciles with more intrusive supervisory regimes.
“Empty shells or letter boxes are not acceptable,” Gabriel Bernardino, Eiopa’s chairman warned in the Eiopa paper in stark language that seems at odds with the dense legalese usually spoken by regulators and technocrats – particularly at EU level.
This was the core of Frankfurt-based Eiopa’s warning to the national regulators – to adhere to a “sound authorisation process”. There is undoubtedly heated competition to grab whatever can be taken from the London market table, and the various regulators – it should be remembered – work for their respective political masters.
So, self-interest is alive and well on a nation state level within the single market, even without the Eurosceptic UK sat at the table. From a UK perspective, it is undeniably refreshing to see the position of the EU members show signs of a patchwork of competing interests rather than a seamless front arrayed against Brexit and London.
One thing which jarred in Eiopa’s paper, again from a UK point of view, was the remark that: “no automatic recognition of existing authorisations should be granted”. Come again?
London market firms have spent just as much treasure and perspiration in preparing to comply with onerous regulations – such as Solvency II, for more than a decade – as their peers in other EU member states.
Brexit may have put many politicians in London and Brussels at odds with each other, but regulators on other side of the English Channel have not altered their respective positions.
Brexit, or any other unrelated political development, should not make them any less equivalent overnight. To say otherwise looks unnecessarily spiteful from a London market perspective. All of this fractiousness from the supervisors suggests that they are starting to become more swayed by politics, and that, in their consequent follies, they are just as human as the rest of us.
It should also not be forgotten that if regulators are starting to build walls rather than bridges, then EU insurers will suffer, too. There is a deficit of passporting needs that is in London’s favour, meaning that there are many more EU insurers that will need to set up London subsidiaries to maintain UK access, than there are London market firms setting up to keep EU access.
By David Benyon