When dealing with international trade, it is said, it is much better for businesses to deal with one set of regulations that the 28 of each of the Members States of the EU.
There lies much of the justification for participation in the EU’s Single Market but it is also one of the strongest arguments for ditching the EU and moving on. If, after all, it is better to replace 28 sets of regulations with one, it has to even better for the 162 members of the WTO to get together and replace all their regulations with one set.
What applies on a narrow “Little Europe” front, therefore, applies in spades at a global level – and even more so in truly globalised industries such as financial services.
Furthermore, if regulation is to be global, then we need to be at the global “top tables” where we can protect our interests, rather than relying on the EU to represent us, along with 27 other member states, many of whom are competitors who do not share our values.
Nor is this an academic issue. Increasingly, the EU sees itself as a global actor, an ambition which is driving it ever more to take over member states’ powers and representation on global bodies. The latest example of this is the IMF, with the Commission proposing to take over the representation from member states and to speak as a single voice for all euro members. It can only be a matter of time before they come for the United Kingdom as well.
If the UK is to influence global regulation then it is absolutely essential that we keep our seats on these global bodies. Furthermore, we must retain the autonomous right to cast our votes at these “top tables” in the national interest – rather than in accordance with the “common position” agreed by the 28.
But before we even begin to prevail with this argument, we need to be must more assertive in reminding people of the sources of our legislation, and the fact that they increasingly originate from global bodies.
What we can’t afford is the missed opportunities, as represented by the article in City AM, where Philip Booth – of the IEA – discusses the effect of Brexit on financial services legislation, and in particular the Solvency II package on capital adequacy.
Casting this as EU regulation, Booth fails anywhere to inform us that the package is actually implementing “recommendations” from the International Association of Insurance Supervisors, the International Accounting Standards Board, the International Actuarial Association and nine other agencies alongside the World Bank and the IMF.
Booth’s view is that Brexit is a choice between Britain in an over-regulated European Union and an over-regulated Britain outside the European Union. If we are going to improve how we regulate financial services, leaving the EU, he says, “is not a silver bullet”.
Thereby, he manages comprehensively to miss the point. When regulation such as this stems from global bodies, the UK currently has considerable, albeit residual influence. The UK is a member in its own right of G7 and G20, of the Financial Stability Board – the executive arm of G20 in the financial services domain – and the OECD.
We are also members of the Basel Committee on Banking Supervision and, of course, of the World Bank and the IMF. But, in our membership of the IMF, we see the direction of travel. Over time, the EU is seeking to strip us of our autonomy on all global bodies, as it has already done on the United Nations Security Council, the WTO and many other bodies.
As for the debate on over-regulation, one can argue that financial services are badly regulated and that the financial crisis of 2008-9 was in part the result of a failure of regulation. In this context, it should not be forgotten that the purpose of regulation is often to prevent catastrophic failure or serious crime, or to enable authorities to penalise crime when it has been detected and the perpetrators apprehended.
In terms of failure, the cost of the 2008-9 financial crisis was estimated by the IMF to be $11.9 trillion (USD), in which circumstances the estimated cost of £3 billion for this round of legislation – of which Booth volubly complains – is relatively modest.
Putting it in the specific context of the securities market, we are talking of a huge industry. At end-September 2010, it had 1,101 UK and 328 foreign companies listed on its main market, and 1,204 (including 224 foreign) admitted to its AIM market for small and medium-size enterprises By September 30, UK-listed companies had a market value of £1.82 trillion and the AIM companies (UK and foreign) of £65.6 billion.
Against that, looking at the highly regulated meat industry, I would estimate that regulation adds about 30 percent to the capital costs of a slaughterhouse, and at least 20 percent to the overhead. By contrast, £3 billion to regulate a £1.82 trillion industry is chump change.
These are the real issues that the Leave campaign should be engaging with, not the marginal issues where there is unlikely to be any public support. Who, after all, is going to feel sorry for “over-regulated” City fat cats?
The post was originally published by the author 22 April 2016 https://thescepticisle.com/2016/04/22/the-globalisation-of-regulation-should-be-at-the-heart-of-the-leave-campaign/