City fights back amid EU stock market onslaught with Rishi Sunak planning Budget overhaul

Rishi Sunak is planning a shake-up of rules for the UK’s financial services industries amid attempts by the EU to woo, coerce and threaten them into moving to the continent.

The Chancellor is said to be preparing to use the Budget tomorrow to make the City more ‘agile’ in a bid to attract more firms to Britain in the post-Brexit era.

They want to make London better-placed to compete with New York, Frankfurt and Amsterdam with a new regime of regulatory freedom.

Alongside the Budget the Treasury is expected to public a review led by Lord Hill, the former EU financial services commissioner, the Financial Times reported.

It is expected to outline a raft of changes to make the city better set for future growth. 

It comes as Brussels takes an increasingly hardline over having a financial powerhouse on its doorstep.

Last week Bank of England governor Andrew Bailey lashed out at the EU today, suggesting it could be breaking the law by attempting to force City clearing houses to relocate to the eurozone in order to keep trading within the bloc.  

Last month Amsterdam overtook London as Europe’s biggest share trading hub. 

An average 9.2 billion euros worth of shares were traded daily on Euronext Amsterdam and the Dutch arms of CBOE Europe and Turquoise in January – up more than fourfold from December.

By contrast volumes in London tumbled to 8.6 billion euros. 

The changes that Lord Hill will propose are reported to include relaxations on dual-class shares. These give additional voting rights to holders and are usually offered to company founders, their families and senior executives.

They are currently allowed on the main run of the London Stock Exchange but not in the FTSE 250 and 100 indexes.

It is also reported to suggest a change to the minimum level of the ‘free float’ for a company to list in London. Currently 25 per cent of shares have to be offered to the public for sale but it is claimed this level has put off investors who want it lowered.

The review is also expected to look at whether to attract more special purpose acquisition companies (spacs) – shell companies which list on a stock exchange and then look for a private company to buy and take public.

This allows large firms to be publicly listed without the need for an initial public offering of shares.

Speaking to the FT in a pre-budget interview last week Mr Sunak said: ‘We want to make sure this is an attractive place for people to raise capital.’

We want to remain at the cutting edge of that and make sure we’re still competitive.’

The UK and EU are attempting to thrash out a ‘memorandum of understanding’, setting out how the UK and EU will continue to trade in the key financial services sector.

One option is ‘equivalence’, where the UK and the EU agree to grant each other access to their markets if they deem their rules are closely enough aligned.

But while the UK’s financial sector has granted the EU equivalence in 17 areas, so business can carry on as usual, Europe has so far refused to reciprocate.

Mr Bailey last week said the row masked a resurgence of an EU ‘location policy’ designed to weaken a powerhouse of the UK economy. 

He addressed MPs on the Treasury Committee this afternoon, days after it was revealed Europe’s top banks are being asked to justify why they should not have to shift clearing of euro-denominated derivatives worth billions of euros from London to the EU. 

December’s Brexit deal did not include an agreement on financial services including clearing house trade in euros on the London Stock Exchange that amounts to more than £150billion every day.  

Last November Rishi Sunak unilaterally allow financial services firms from the EU to do business in post-Brexit Britain and bemoaned the failure of the EU to strike a similar deal for the City since 2016.

Mr Bailey said the EU had first suggested a location policy when the euro currency was launched in 1999, but ‘Brexit has obviously been in a sense a stimulus to revive this debate’.

‘The issue of location policy is not a new one in that sense, we have been aware of it. What has been most notable in the last few days is how it seems to be coming to the surface. The timing isn’t that surprising given where we are.

‘It would be very controversial in my view because legislating extraterritorially is controversial anyway, and obviously of dubious legality frankly.