Responsible openness based on international collaboration and standards. This principle is particularly relevant to the UK given the Government’s policy of maintaining the UK as a leading international financial centre, which is itself rooted in a centuries-long tradition of London as a major global trading hub. In practice, what does this mean? It means three things: first, that we have a mandate to engage strongly in international standard-setting processes and make sure that we are at the forefront of implementing those rules in a thorough way; second, that we adopt practices and structures which promote strong collaboration with colleagues in other jurisdictions; and third, that we are open to hosting cross-border business in the UK – but only if it is appropriately controlled and governed. Our recent moves to ring-fence retail banking, and other expectations (some going back to 2014) that firms will subsidiarise material retail banking and insurance businesses, are a vital part of what enables us to take this approach safely. 3. Proportionality and sensitivity to business models, and promoting competition. We have, for better or for worse, adopted a system in which financial companies are privately or mutually owned and then regulated in the public interest in order to make them internalise costs which might otherwise be borne by others. An analogy is sometimes drawn with pollution: the factory is encouraged to generate wealth for its owners by employing people to make products that people want to buy, but it cannot have a free pass to pour waste chemicals into the river.
The other attraction of using the approach taken for the SMCR for future regulation is that it has been the preferred approach adopted by Parliament most recently when not constrained by EU regulation (for the rollout of the SMCR to insurers, which occurred in December 2018). This is an important consideration at a time of heightened debate, in a Brexit context, about so-called “Henry VIIIth” and “Cardinal Wolsey” powers. Although it is uncertain quite what those gentlemen’s views would have been on the output floor in Basel 3.1, my point is that making use of an approach recently chosen by Parliament seems to me to have considerable attractions relative to choosing something completely new and untested. Would it not, though, be easier and better simply to stick with the EU model through which we have recently imported a large volume of rules? This approach is radically different from the approach the UK has taken when left to its own devices. Indeed, the EU model, with a large body of technical rules set out in the equivalent of primary legislation, is quite different from how most of the world does it. For example, the EU and Switzerland were the only two members of the Basel Committee on Banking Standards where Basel 3 was implemented through primary legislation rather than the prudential authority’s rule-making powers – in major economies like the US, Australia and Canada the regulators did the implementation.