12 Jun 2017
As the string of unexpected election results continues to unravel, it takes a bit of chutzpah to persevere with political predictions. But the KYC360 team is undeterred. Here, tentatively, are our collective observations on what the outcome of the 2017 UK General Election might mean for financial crime prevention professionals:
Theresa May looks likely to keep her job for now, but with a far weaker personal mandate. Nick Timothy and Fiona Hill, the unelected advisors with whom May was accused of governing in politburo style, are out. Going forward, the Prime Minister will be forced to lead in a more collaborative manner, both in relation to her own party and to its new Democratic Unionist Party allies.
This could be good news for the Serious Fraud Office, the UK’s specialist enforcement agency for complex fraud and corruption cases. As Tom Devlin reported for KYC360 last month, the Conservative manifesto promised to incorporate the SFO into the much larger National Crime Agency. This, Tom argued, would be a disastrous move, spelling the end of the unique expertise and prosecutorial energy harboured under the SFO’s roof.
The Conservative manifesto was thin on rationale for the move, but an SFO/NCA merger appears to be a personal crusade of May’s. As Home Secretary she attempted the same thing twice: once in 2011, when she was halted by opposition from Ken Clarke and then Attorney-General Dominic Grieve, and again in 2014.
Widely described by both party members and commentators as disastrous, much of the manifesto now looks likely to be scrapped. With May’s personal mandate capped, the SFO, which clearly has supporters in the Conservative party, may yet survive as an independent agency.
Loose reg London
There are endless competing visions for post Brexit Britain, but one popular amongst “hard” Brexiteers is to turn the capital into something like an offshore financial centre, with a focus on emerging markets. London’s success since the 1980s, the argument goes, has been built on three things: lower taxes and looser regulation than other European capitals, and the UK’s membership of the European Union, which allows banks set up in London to operate freely in all EU member states. The last of these gone, the UK could simply double down on the first two and in addition—freed from the restraints of the Customs Union—form new trade deals in emerging markets (in particular, former colonies such as Nigeria and India).
There would have been obstacles to this approach even if the Conservatives had secured the landslide victory they hoped for. Isolated after a cliff-edge exit from the EU, the UK would be forced to kowtow to its probable new closest ally, the US. And both the US and Britain’s former European partners would take a dim view of arbitrage attempts on regulatory standards designed to make London more competitive than their own financial hubs.
But the outcome of the General Election looks likely to precipitate a softer Brexit deal than Theresa May has described in the past. Her control of the House of Commons now depends on the Northern Irish DUP and the Scottish branch of the Conservative Party. Neither, for different reasons, wants a “no deal” Brexit that leaves Britain out of both the Single Market and the (less prescriptive) Customs Union. It remains unclear how much the UK will have to give up to wrest back control of European Immigration, but a deal that leaves Britain somewhat in line with European regulatory standards looks more likely than before.
A Corbyn coalition
It is impossible for Jeremy Corbyn to assemble a rainbow coalition that could vote down the combined forces of the Conservatives and the DUP. But he has said that he expects to fight another election “within months”—and that he expects to win. This seems unlikely: the General Election was a disaster for May, but she still secured more votes than any Conservative leader since Thatcher. Nonetheless, Corbyn as Prime Minister at some point in the future seems a less remote possibility than it did two months ago.
A Corbyn led Labour government would have implications for Brexit, of course, and could spell disaster for those of Britain’s Crown Dependencies and Overseas Territories that currently pitch themselves as specialist offshore financial centres. Corbyn sees them as UK accredited tax havens and has been unreserved in his criticism, even last year calling on the Government to impose direct rule on them in the wake of the Panama Papers revelations.
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