Europe is in a deregulatory mood. The UK government has placed removing regulation in a wide range of areas at the heart of its growth strategy. In the EU, president of the European Commission Ursula von der Leyen is spearheading a similar drive.
The all-out war on regulation in the US under president Donald Trump has only upped the stakes. European governments and regulators have shown no sign they plan to emulate the White House’s brash — and maybe illegal — regulatory bonfire. So far, most floated reforms to financial regulation have been tweaks; like changes to listing rules.
The question is whether larger reforms would be welcome at all.
Firms operating in London are only just emerging from managing the legal implications of Brexit. To embark upon a further period of adjustment could be a costly distraction, especially as the benefits of deregulation remain unclear, both for financial markets and for growth.
Take for example the introduction of T+1 settlement. The UK is following the US, which completed its own transition from T+2 to T+1 for stock trades last year.
Chancellor of the exchequer Rachel Reeves confirmed on Wednesday that the UK government aims to complete the transition to T+1 settlement for securities trades by October 11, 2027.
The Treasury says this will “put more money into people’s pockets”. The tone is misguided.
First, from the point of view of market actors, the transition to T+1 means bearing significant cost with unclear benefits. Bloomberg Intelligence estimated last year the US transition would cost firms $31bn a year. Smaller firms are thought to be particularly exposed.
At best, T+1 will lower the risk that counterparties default before settlement. But this comes at the cost of a significant deviation from existing cash management practices, which work pretty well.
The case for a growth boost is even weaker. The road from a small reduction in settlement failures to “money into people’s pockets” is a long, tortuous one.
The financial benefits of these expensive regulatory changes could prove elusive to all but the lawyers walking their bleary-eyed clients through them.