POLITICO rings the London Stock Exchange bell

SNEAK PEEK

— U.K. regulatory contingent heads across the Channel for some schmoozing.

— Cross-bench MPs to probe Bank of England on interest rate division. 

— FCA calls in real-estate big guns as work-from-home trend continues.

Good morning! Today marks the official launch of POLITICO Pro Financial Services U.K. subscription service and the very first edition of this newsletter. We’re writing from none other than … the London Stock Exchange, where we’ll be opening the markets at 8 a.m. by ringing the infamous bell. Except, it’s not a bell any more. It’s more of a ceremony that seems to involve a lot of screens and, we’re told, a “market open” mechanism. Photos to follow.

We join the ranks of Succession’s Logan Roy — aka Brian Cox — who opened markets at the LSE for the release of the series’ fourth season. Although, I’d like to think this newsletter is even more hotly anticipated.

I’m Eleanor, and I’ll be popping into your inbox this week, with help from my excellent colleagues — reporters James Fitzgerald and Hannah Brenton, and editors Fiona Maxwell and Izabella Kaminska.

It’s going to be a bumpy year. The British economy entered a technical recession as of Thursday, and although it looks set to be short-lived, it’s provided the perfect opportunity for opposition Labour — which is trying to woo the City — to take potshots at the incumbent Conservative party.

The cost of living crisis continues, with mortgage rates reaching record highs following Liz Truss’s infamous “mini-budget” of September 2022 — although they are slowly beginning to come down. In a matter of weeks, we’ll get the Spring Budget, which comes amid rumors of potential tax cuts and a Great British ISA (see James’ great scoop here). A government keen to woo, perhaps? Of course, there may be an election this autumn.

With spring comes the next U.K.-EU financial services forum — but, despite warmer relations, it seems unlikely Britain will be granted any preferential access to the bloc. And closer to home, there’s a ream of policy coming up on topics from capital standards for large banks to proportionate rules for smaller ones, from green finance to diversity and inclusion, plus the second and final stage of the FCA’s Consumer Duty. That’s just to name a few.

So, there’s a lot to cover in financial services in these increasingly political times. We’ll be following all of it, digesting its significance, and sending everything you need to know to your inbox at 7 a.m. each morning.

Send tips, feedback and encouragement to: emyers@politico.co.uk, jfitzgerald@politico.co.uk & hbrenton@politico.eu.

And why don’t you follow us on Twitter/X: @eleanor__myers, @jamesfitzjourno & @hannahcbrenton.

DRIVING THE DAY

GETTING CHATTY OVER THE CHANNEL: The U.K.’s top finance officials and regulators are traipsing across the English Channel today, as they cozy up to their EU counterparts in Brussels and in the beautiful medieval city of Ghent.

Getting friendlier: The EU and U.K. are talking again, having fallen out for years after Brexit. But the thaw in relations doesn’t mean the City of London will get better access to EU markets any time soon.

Eurofi schmoozing: Still, as relations improve, key figures from the Treasury, Bank of England and Financial Conduct Authority will all be attending the Eurofi conference this week — a private behind-closed-doors event where the industry pays big bucks to schmooze their supervisors.

Open the fizz: The conference starts tomorrow in Ghent, but the pleasantries begin today in Brussels. Ashley Alder, chair of the U.K.’s financial watchdog, will host a reception at the U.K. Mission to the EU, where he is expected to preach the merits of open financial markets, despite the darkening geopolitical context.

Who exactly? City Minister Bim Afolami will echo a similar stance in his speech at Eurofi on Wednesday. The Bank of England’s Sarah Breeden and the Financial Conduct Authority’s Nikhil Rathi will also be on hand at the event, as well as other senior staff from the watchdogs, according to an attendee list, seen by Morning Financial Services U.K. (henceforth known as MFS U.K.)

Touchy topics: Any conversations between the U.K.’s top officials and senior EU finance bods — who are as usual out in force — might not all be easy. The BoE could use the opportunity to ram home its concerns about money market funds — and the EU’s lax approach. And there’s the potentially sensitive area of securities settlement — where both the EU and U.K. are trying to catch up with the U.S., yet have a wary eye on each other for fear of falling behind.

Clearing: One topic will be a bit less sore for now. The EU’s final plans for euro-clearing, until now the main Brexit flashpoint between the two sides, are better than expected — but U.K. officials might not want to look too pleased. Look out for our analysis on what the deal means for the City of London later this week.

WHAT’S ON

— Andrew Bailey and others attend Treasury committee hearing on the February Monetary Policy Report at 10:15 am.

— Global Block Business Council European Parliament Event: “A new digital finance paradigm,” with Bank of England Fintech Director Tom Mutton.

**A message from Nationwide: Unlike the banks, Nationwide Building Society is owned by its members, not shareholders. That’s anyone who banks, saves or has a mortgage with us. Which means we can always focus on what’s best for them. It’s our fundamental difference and what makes us a good way to bank. Find out more.**

ECONOMY

MORNING GRILL: Bank of England Governor Andrew Bailey and three members of his Monetary Policy Committee (MPC) will be grilled by MPs on the Treasury committee this morning at 10:15 am.

Rates are tearing us apart, again: MPs are keen to find out why a majority of MPC members (6-2-1) voted to hold the bank rate at 5.25 percent on February 1. They are also curious to find out why two members, Jonathan Haskel and Catherine Mann, once again voted in favor of a rate hike of 0.25 percentage points while external member Swati Dhingra voted to cut by 0.25 percentage points after previously voting to hold, and Megan Greene (another external member of the MPC) changed tack by moving from hike to hold. Dhingra will appear at the committee alongside Bailey, plus colleagues Ben Broadbent (BoE deputy governor for monetary policy) and Greene.

Under pressure: Lawmakers will probe what the “mood” is like at the U.K. central bank, especially after last week’s news that the British economy slid into a “technical” recession last December, and how likely a rate cut is this year. Bailey and co will be pressed on inflation, whether risks of over-tightening have increased since November, and ask members about the direction of wage growth. MPs are also set to investigate how businesses and households are coping with rising mortgage rates.

COME ON DOWN: Shadow Chancellor Rachel Reeves summoned Jeremy Hunt to the Commons Monday afternoon to explain why the U.K. has slipped into a recession.

No show: The chancellor was nowhere to be seen. Instead, city minister Bim Afolami stepped up in his place to face Labour jeers. Reeves thundered that Hunt should “answer to his failure” and his absence was an “insult to people who go to work every day and experience the reality of 14 years of Conservative economic failure.”

What recession: Afolami hit back, kinda. He told MPs that despite the recession, there are “reasons to be optimistic that the economy is turning a corner” and the U.K. has “proved resilient in the face of unprecedented shocks.”

INSURANCE

INSURERS READY TO MAKE GOOD ON 100BN PLEDGE: Once regulation is enacted to allow U.K. insurers to invest in greener assets, they have £100 billion ready to go, a report from the forum overseeing their plans said.

SO WHAT? Two years ago, insurers lobbied for changes to capital rules (known as the Matching Adjustment) in the post-Brexit version of Solvency II — called Solvency U.K. here. They argued that rules inherited by the EU prevented them from investing in green projects, ultimately winning the argument and causing a spat between the U.K. government and the Bank of England in the meantime.

Spare change: Amended rules would enable them to invest around £100 billion in green infrastructure, insurers argued. There were some skeptics — Sam Woods, PRA chief executive, for one, questioned whether the cash would just go straight to shareholders — but the industry has remained insistent that it will deliver on its pledge, and has identified next steps to reach its target.

Checking in: In an interim report published Monday, the Investment Delivery Forum — set up to monitor insurers’ progress — said the U.K. faces a funding shortfall of £615 billion of green investment by 2030.

Why wait? Insurers are aiming to provide £100 billion of that once changes to Solvency U.K. are made in law. The rulebook will be in place in its entirety by the end of the year, while the amendments needed for green infrastructure investment are set to happen by the end of June. In the meantime, a few things are needed, the report reckons: more power for regulators like the OBR or NIC, a regulatory “sandbox” to test tricky investment areas, and better public/private partnerships.

Reaction: The government “eagerly anticipates seeing these critical investments come to fruition,” city minister Bim Afolami said. Association of British Insurers Director General, Hannah Gurga, told MFS U.K.: “The £100bn opportunity that the industry is committed to over the next decade can only be realized if we act now to find solutions to investment barriers. The use of pilots and a regulatory sandbox could be important to this progress.”

ENFORCEMENT

LONDON CAPITAL & FINANCE CIVIL TRIAL STARTS: The administrators of LCF began their civil case against former executives of the collapsed mini-bond firm yesterday at the U.K.’s High Court.

The trial: The case was filed in August 2020 and was originally against 15 defendants from LCF. Since then, administrators have settled with six of them.

Bad bonds: LCF collapsed in January 2019 with around £237m of bondholders’ funds lost. Investors were defrauded by LCF’s “mini-bond” products — which were unregulated, despite the company itself being regulated by the FCA — with customers told they could get high returns on their investments. Many individuals put substantial savings into these products and have had their lives torn apart.

Watch out: The business was operating as a Ponzi scheme, according to the claimants, represented by Stephen Robins KC. They claim the business was undertaken with intent to defraud bondholders and that investors’ money was misused. Some examples: one defendant purchased a total of 32 luxury watches, including nine Patek Philippe watches which were alone worth more than £630,000. Another defendant bought some land in Jamaica.

Crackdown: As part of its ongoing investigation, the Serious Fraud Office secured a 10-month sentence against former LCF CEO Michael “Andy” Thomson in May last year — suspended for two years — after he breached a restraint order imposed on his bank account. The FCA fined the firm’s former compliance chief last week and banned him from working in financial services.

What next: The case is expected to be completed by mid-summer.

COMMERCIAL PROPERTY

FCA PAYING £1.2 MILLION FOR PROPERTY CONSULTANCY SERVICES: The FCA has increased its contract with real-estate consultancy Gerald Eve by £400,000 — taking it to a cool £1.2 million deal. Why? It looks like the continuing work-from-home trend means there are too many empty desks in the office.

Contract wording: Reasoning for upping the value to £1.2 million (that’s excluding VAT, by the way) is given as follows: “Due to the changes in the working model and reduced office occupancy, a decision was made to sub-let part of the premises for efficiency, resulting in an increased requirement for property consultancy services which could not have been foreseen at the time the contract was let.” 

Olympic-sized mistake? In 2018, the FCA relocated 4,000 members of staff to Stratford, the largest single-tenant office move in 2018. These were, of course, the pre-pandemic days, when you could still get 4,000 people to come to Stratford every morning. 

Sign of the times: The commercial property slump in London continues. In December, a 12-storey tower in Canary Wharf was sold for 60 percent less than its 2017 price. The trend is similar across Europe: commercial property prices in Germany are suffering their biggest downturn in the last 20 years.

REGULATION

SHOULD FINANCIAL REGULATORS PAY WHISTLEBLOWERS? It’s a question on MFS U.K.’s minds after last week Serious Fraud Office Director Nick Ephgrave said the crime agency should pay individuals who blow the whistle on wrongdoing in their company. The U.K. does not provide compensation — the FCA confirmed that it’s not policy to do so — but it might provide a financial incentive for those witnessing misconduct who are too scared to speak up.

With legitimate reason: In 2018, former Barclays Chief Executive Jes Staley was fined £642,430 by U.K. regulators for attempting to unmask a whistleblower at the bank.

Under consideration? The FCA declined to tell MFS U.K. whether it’s considering such a move, but a review of the U.K.’s whistleblowing framework, conducted by the Department for Business and Trade, is expected in March 2024.

QUESTION TIME

To mark the launch of MFS U.K. we are answering questions from readers — send yours in here.

Q: Do you see that in the medium to long term the two [U.K. and EU] regulatory frameworks will diverge so significantly that the equivalence principles no longer applies between the two?

A: No going easy on us for the first day, then — great question. In a word, no. EU and U.K. regulation pretty much always stems from the same source — that could be an international body (e.g. Basel Committee, Financial Stability Board), which has policymakers on both sides of the Channel present — or the same event, such as the 2020 “dash for cash” or a desire to push out risky crypto-assets and investigate digital state cash. Really, rules are never that far apart. Yes, the letter of the law will diverge, but the spirit remains.

Without meaning to parrot U.K. authorities, rules that were applied to the City of London as a member of the 28-country bloc cannot be the same as when the U.K. gets to decide its own, but few pieces of legislation will diverge so far that equivalence isn’t achievable. Let’s be honest: equivalence is predominantly a political process. If relations continue to stay warmer between the two sides, surely it remains on the table.

WHAT WE’RE READING

Bank lending to businesses set to rise only marginally, the Times reports.

Pivotal case in U.K. law begins over climate protest at JPMorgan offices, the FT writes.

Thanks to: Fiona Maxwell, Izabella Kaminska, and Giulia Poloni.

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