In London social circles of certain status, it has long been common to hear wealthy people complain. Even before the Labour government got in, they would say the taxes are too high, the schools aren’t what they were, along with several other minor gripes that you might characterise as ‘first-world problems’. In recent years, however, I have detected a harsher tone in some of the grumbles, particularly as increasing numbers of prominent entrepreneurs have felt the sting of over-regulation by one of several government agencies.
You have probably heard some of the horror stories. There are whispers of irrational enforcement actions, sweeping bureaucratic powers and a casual willingness to destroy lives and seize wealth, particularly when it has been in the possession of those without English surnames. In some cases, HNWs are making the difficult decision to leave the country.
[See also: UK to see largest exodus of millionaires in the world]
Too expensive to be wealthy in Britain
According to a recent report by advisory firm Henley & Partners, nearly 10,000 millionaires are expected to leave the UK in 2024 – almost twice as many as the previous year.
The reasons cited for this exodus are usually straightforward: it has become too expensive to keep wealth in the UK.
The country ranks below 29 other nations in the Tax Foundation’s International Tax Competitiveness Index. But for a number of clients who have consulted with our legal firm in recent years, the tax burdens are less of a problem than the relentless compliance risks they face from politically ambitious regulators at the Financial Conduct Authority (FCA), the Serious Fraud Office (SFO) and the Office of Financial Sanctions Implementation (OFSI), among others.
When these agencies were established, it was no doubt with the best intentions. The 2008 global financial crisis revealed a high level of risk being taken with cheap credit, followed by embarrassing levels of government complicity in absorbing losses.
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‘Regulatory monster’
However, what began as a recalibration of oversight has morphed into a regulatory monster. It’s not just traders and bankers who get targeted now, but also entrepreneurs, investors and family businesses. This persecutory drive toward softer targets is stifling innovation, driving away talent, and making Britain a less attractive destination for global capital.
The FCA’s Soviet-style ‘name and shame’ proposal in February should have been a clear sign. Its aim – to release potentially defamatory material about firms in the earliest stages of investigation – was unwise to say the least. According to its consultation paper, the FCA alone would decide which names would be released ‘in the public interest’. In other words, it is willing to imply guilt before any evidence is accumulated or defence mounted.
The regulators have also shown a willingness to drive far beyond their mandate. Look no further than the disastrous case the FCA brought against the BlueCrest Capital hedge fund. Last year a tribunal reversed the FCA’s £41 million fine and its proposed $700 million client-redress scheme. At the centre of the regulator’s case was BlueCrest’s appointment of managers within the fund – which would appear to some as interfering in operations.
The tribunal judges criticised the regulator for a ‘lack of clarity’ that made it ‘difficult to identify the essence of the authority’s thinking’, according to the Financial Times. Nevertheless, the case continues, with the FCA taking it to the Appeal Court.
The sheer volume of financial conduct rules has increased the compliance burden on firms. There is also a burden to satisfy anti-money-laundering (AML) regulations. While the need to combat illicit financial activity is beyond dispute, the FCA’s stringent AML requirements have gone far beyond what is necessary.
The creep of over regulation
But the British aren’t alone in over-regulation. My law firm has worked with clients who have faced discrimination by financial services firms in numerous European nations, including Switzerland, where any given banker can make arbitrary decisions to close accounts and deny services to HNWs based on nothing more than a dodgy blogpost or TikTok video making false claims.
[See also: Flight risk: Britain’s super-rich are on the run]
They are doing this because the fear of the regulators is greater than the benefit of doing business with international clients.
What is to be done? In all legislation, we should identify objective criteria to be used by individuals in compliance to ensure that some form of proper due diligence is exercised. But most critically we must have – and maintain – a right for citizens to appeal and present their case in response to a de-banking decision.
There must be a greater responsibility on those exercising these great powers to provide reasoned, written decisions for such extraordinary findings. If at a minimum they were required to provide written explanation, we would probably see these de-banking decisions cut in half overnight.
Robert Amsterdam is an international lawyer and the founding partner of Amsterdam & Partners LLP
