Post-Brexit financial services overhaul may lead to ‘race to the bottom’

A push to scrap legacy pre-Brexit regulation to boost the City’s attractiveness may result in a race to the bottom, a former minister and academics have warned.

Sir Vince Cable, a former Lib Dem business secretary under the coalition government, and others have in a letter to chancellor Rishi Sunak a watering down in rules may create an environment that is prone to future financial crashes.

Brexit does give lawmakers an opportunity to shape the UK’s regulatory regime to unlock productivity and innovation gains in the financial services sector.

However, Cable, 79, and others including Nobel-prize winning US economist Joseph Stiglitz, warned Sunak a complete overhaul of rules such as capital requirements for banks and insurers “implies a beggar-thy-neighbour race to the bottom competition with other nations, leaving everyone worse off”.

The group said using Brexit to boost the financial services sector will hamstring the government’s levelling up plans.

“Promoting [the sector’s] international competitiveness will also intensify this competition against other parts of the UK economy, which are disproportionately located elsewhere in the UK,” the letter said.

Most financial services activity is concentrated in the capital and generates significant tax revenue for the Treasury.