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Who will ultimately pay the price?

It’s all bonfires and marches in Northern Ireland at this time of year. Specifically, on 12 July the victory of William of Orange at the Battle of the Boyne in 1690, an event that secured a protestant king on the throne, is commemorated and celebrated. And although Covid has splintered the normally large parades into numerous smaller ones, for Ulster Unionists The Twelfth this year was more significant than ever. It provided an opportunity to bang drums in anger over the Northern Ireland Brexit protocol that appears to have left the union fraying at the edges.

When it comes to the movement of goods, in effect NI remains in the EU. The UK’s border with the EU is not along the contours of Ulster counties but in the middle of the Irish Sea, a situation that sits uneasily with Unionists but is a useful thorn for the EU to press in its battle with a former ally now turned persona non grata. Every protocol breach increases the friction and lessens the chance of favourable new deals. Not that anyone is expecting the EU to do the UK a favour, but it’s always useful to have evidence of a real grievance when you are adopting a hard-line approach.

If that is the bed we’ve made, then no time can be wasted chasing a reconciliation. It’s a question of moving on and being bold. The moving on is happening through initiatives such as the new Office for Investment while the plan of action for financial services instigated by regulators and government is the bold bit.

As Alex Newman outlines in his assessment of the City of London’s future, the financial services sector has resigned itself to a no-deal future. No equivalence, no passporting, no way in. And a strong chance that the EU will become ever more protectionist.

Financial services is a significant sector – “the engine of our economy” in the chancellor’s own words – which contributes £194bn to the economy and gives jobs to 2.3m people. Brexit has caused an exodus of jobs and business and London is not now as dominant as it was.

Hence the united drive to get financial services back on the front foot through proposals such as the Hill review (making London listing friendly), the New Chapter for Financial Services (ensuring London stays a pre-eminent global financial hub) and the Future Regulatory Framework (all about light-touch regulation).

They have a common aim: to make London agile, dynamic and business-friendly. The plan is to move laws relating to financial services from the statute books to regulators’ rule books – this is essential for a light-touch regime, otherwise every time regulators want to make changes it will require parliament to amend or pass new legislation. And regulators will be free from political interference – they will not need to discuss their plans with government ministers.

There are also plans to lower overall capital requirements, to review ring-fencing legislation, proprietary trading rules and “distortionary regulatory requirements” in wholesale markets, along with the funds regime to ensure that the UK is suitably attractive for asset management.

But a nimble light-touch regime can create its own problems and that is the risk. These may be the right ingredients to make the UK one of the most competitive places to locate financial services but the interests of taxpayers and investors must be given equal consideration. It may be true that a permissive approach to regulation is the reason why the UK’s financial services sector has historically been ahead of those within the EU – as a partner at Shearing and Sterling has suggested – but the price of prosperity in the sector must not be paid by investors.