Global financial stability could be put at risk if the UK does not win sufficient regulatory autonomy after Brexit, the boss of Ice Futures Europe has warned.
Stuart Williams, the president of Intercontinental Exchange's London-based global futures and options exchange, told City A.M. today that the UK capital has the power to remain a global financial hub – but that it must align itself to global market standards rather than simply following prescriptive EU rules.
Speaking as part of City Week at the Guildhall, Williams added that Ice had been "encouraged" to see signs of agreement between the UK and the EU on post-Brexit transition arrangements, but that the finer detail of how the two areas would maintain the flow of financial services would prove to be key.
"If you go back to just after the referendum, and the panic, a lot of the banks in the City were talking about passporting at all costs. They were concerned that passporting would be essential in order for the City to continue to operate," Williams said.
"As that dialogue has continued, the ideas of mutual recognition or enhanced equivalence or some concept where there is market access on the basis of adherence to regulatory principles has gained momentum – both on our side of the channel and across the water."
Yet Williams noted that the overarching principles which will underpin such a system, to allow the cross-border flow of financial services, must be broadly defined and cannot be too prescriptively specified by the EU.
"When one operates in terms of principles rather than the detailed prescription, it allows markets to develop and innovate and define the most efficient structure," Williams explained.
He added that in some areas, the EU has been starting to diverge from global norms – and that if the UK were to follow suit and apply prescriptive regulation in order to maintain its relationship with its continental neighbours, this could be detrimental.
"Whatever it is ultimately that threatens market stability is not going to be something we can think of yet," Williams clarified.
"But the sorts of things that could contribute to instability, depending on which path we take, are some of these overly prescriptive issues.
If the key global jurisdictions – the US, the UK, the EU and Singapore – have a significant divergence from a harmonised standard where customers are global and trading global capital and there is too much fragmentation of regulation, that sort of fragmentation could cause an issue down the line.
Clearing, the process through which financial processes are settled, must also not become a political tool, according to Williams.
"I understand the political drivers but when you're talking about something like clearing, it's got to be first, second and third about market stability," he said.
"It comes back to that question of what is the most efficient model for markets, and what are the key risks to market integrity and stability. That's got to be the primary determinant [of where clearing houses are located], not political will."