The key trade-off for any business is that of costs versus income. The issues surrounding regulation are very similar – businesses need to operate in a regulated market, but the benefits of regulation need to outweigh the costs. This premise is very relevant for the European Union project. The free trade zone initially created by the European Economic Community (EEC) and the efficiencies (supposedly) generated by a single currency, all should lead to an increase in trade, benefitting all concerned.
However, the investment management community and especially the ‘boutique’ (i.e. smaller firms) community find that the regulatory burden imposed upon us by the EU (AIFMD, MiFID II, etc.) is so expensive and onerous, that in themselves these regulations are an issue in terms of our business sector prospering. We also find that the implied benefits of an open and free trade zone are largely illusory. As companies trying to sell our products across Europe, we are constantly obstructed by an uneven application of the law, ignorance of the free trade rules, and in some cases protectionism. In this paper, this is clearly illustrated in our case studies of accessing Germany and Slovenia. The costs of the regulations in many instances outweigh the advantages.
This is a serious situation to find ourselves in, and in collaboration with Open Europe we wanted to bring a positive case for reform in Europe at a time when both the economic and political basis of the principal of Europe are coming under increasing pressure. We have laid out in this paper a clear series of changes we would like to see made, as well as illustrated the barriers we currently experience to a ‘proper’ free trade zone in Europe. We have specifically avoided trying to make political judgements, leaving that for the politicians, but we do believe that bigger, freer trade zones, properly regulated, are highly desirable for all members of the New City Initiative and we hope that our thoughts here help us achieve this goal.
Dominic Johnson
Chairman, New City Initiative
CEO and Founding Partner of Somerset Capital Management LLP