What deregulation means for the UK economy

0:02Good morning from the Financial Times. Today is Tuesday, July 22nd, and this is your FT News briefing. JP Morgan may be leaning into crypto. And the European Union wants to make Britain pay to join its defense fund. Plus, UK Chancellor Rachel Reeves is on a deregulation spree. She feels that regulation has gone too far, that in a sense the pendulum swung too far after the financial crisis. I'm Mark Filippino and here's the news you need to start your day.

0:42Bitcoin is hitting record highs, and JPMorgan Chase may want a piece of the action. The bank is exploring whether to lend against clients' cryptocurrency holdings. The move could come as soon as next year. That's according to people familiar with the matter. JPMorgan declined to comment. This policy would be an enormous shift. CEO Jamie Dimon called Bitcoin a fraud eight years ago, and he said it was only useful for drug dealers and murderers. Since then, though, the value of Bitcoin has skyrocketed. Last week, it hit more than$122 ,000. And because of that success, more big banks, regulators, and politicians are starting to warm up to crypto.

1:23The U.S. just passed a law regulating stablecoins, which will pave the way for banks to launch their own digital assets.

1:36The UK wants in on a new European defense fund. Now, Brussels is down to let them join, but it's going to come at a cost. Member states would be able to use the fund to buy weapons from UK companies, but Britain would be required to pay the EU a percentage of the value of those contracts. I'm joined now by the FT's Andy Bounce to talk more about this. He covers the EU. Hey, Andy. Hi. So, Andy, give me some details about how this is going to work. What exactly are the conditions of the UK joining this defense fund? Well, there are two key conditions once it's joined. And to do that, it has to sign a special agreement with the EU, the terms of which are being thrashed out now.

2:15The first thing is that EU member states are basically borrowing money, and they will pool that together with other member states to buy weapons, weapons systems. UK companies could get contracts via that method. and then part of those contracts of getting money out of the EU budget. The argument here is then the UK economy is benefiting, it's creating jobs, it's improving capacity of factories, and therefore that should be recompensed in some way by the UK paying off a little bit of the money back into the EU budget. All right, so let me just summarize this if I understand it correctly. UK companies are benefiting from this boom in defense spending by the EU, and the idea is that London will pay back Brussels a percentage of the value of whatever contracts UK companies have gotten.

3:00Tell me more about this fund and how important it is to the EU. So since Donald Trump arrived back in the White House, there's been a lot of fears in the EU that he will desert them, basically, leave them to fund Ukraine's defense and also, you know, may even quit NATO or pull troops out of Europe. So there's a desperate bid to increase the armaments and defense industry capability of the European Union. And to do that, they need money and government budgets are very tight. So the idea is give them some cheap loans by the EU budget, which they can quickly scale up their capacity and also jointly procure.

3:38The key thing is that people have to do this with two or three other members. So the idea is you get sort of big contracts, big orders, economies of scale, and you can really start to add capacity to the European defense industry. Well, Andy, if this program is so important to rearming Europe and fending off the threat of Russia, why is the EU thinking about putting up barriers for the UK to join? Well, there's a couple of reasons. One is this sense that the UK is no longer a member of the EU and therefore cannot be treated on the leveling playing field with members. And there's a range of opinion among member states.

4:13So France is really looking at this as a way of boosting the European defense industry and its own defense industry and putting as much money as it can through their own companies. Whereas Germany, for example, is much more open to the UK membership and does a lot of bilateral projects with the UK. So it's pushing very hard for a lower contribution. What do you think this negotiation over joining the defense fund tells us about UK-EU cooperation right now, if anything? Well, that's a very good question. And I guess everything now after Brexit is a bit of a zero-sum game. I mean, the EU would say, well, look, Canada's going to have to fulfill the same conditions.

4:51So it's a sort of message to UK that nothing is the same anymore. Yes, we're getting closer. Donald Trump's arrival in the White House has meant the euro wants to get closer to the UK. Keir Starmer's arrival in Downing Street as UK prime minister, he wants to get close to Europe. But this just demonstrates how fractious and difficult that relationship is. Everything has to be done, thrashed out, deal by deal, issue by issue. There's no sort of template for how this relationship develops. Andy Bounds is an EU correspondent for the FT. Thanks, Andy. Thanks.

5:27Britain's financial services sector hasn't been looking so hot lately. And Chancellor Rachel Reeves has pinned the blame on regulators. So she's launching a deregulation campaign. But will it actually kickstart the sector? Here to talk to me about it is the FT's Sam Fleming. Hey, Sam. Hi, Mark. So what exactly has Reeves been proposing? The goal Reeves says she's trying to achieve is to take the regulatory boot off the financial services sector because she argues that regulation has done a lot to inhibit the growth and performance of the UK financial services sector since the financial crisis of 2007 to 2009.

6:07And so what we've heard from the UK government is really a bunch of regulatory changes across a number of areas of financial services. Among them are reforms to the ring fencing rules, which aim to separate retail and investment banking. That's a post-financial crisis reform. Reforms to the financial ombudsman service, which is a consumer redress service, which is going to lose some of its powers. Approvals in the area of stock market listings could be sped up. The UK is looking at its implementation of the Basel III reforms. These are the reforms requiring banks to hold more capital, which were introduced after the financial crisis.

6:47So there's an enormous range of reforms they're talking about. I guess the question is really, when you add all these reforms up, how significant are they in terms of the change that this represents in financial services regulation. Sam, why is Reeves so concerned about regulation? I know she gave a whole speech about it last week at London's Mansion House in front of a whole lot of bankers. So as she said in her speech, she feels that regulation has gone too far, that in a sense, the pendulum swung too far after the financial crisis. There was a big ramp up in regulation after that on banks especially, but across the financial services sector, aiming to rein in some of the excesses that we saw during the financial boom and bust.

7:29She is suggesting that regulation process went way too far and she wants to see it dialed back. Why is she trying to do this? The UK is once again in near stagnation or very low growth period. Labour came into power promising to make growth its number one mission. Growth hasn't performed as it expected. So it is looking at ways of trying to revive annual spirits in the economy. So we're seeing this across a number of sectors, but the financial services sector is particularly important in the UK. And so that is why it's getting so much attention from the government. So Sam, we're talking about the UK here, but of course the US is also in the process of rolling back regulations, right?

8:11I think that context is critical in this because the aggressive push for deregulation in the US under Donald Trump is setting the pace really for other countries which have large financial services sectors. The measures that Rachel Reeves has put forward are not of the kind of significance you'd need to see to kickstart the UK economy as a whole. This does not feel like the kind of radical changes to deregulation, which would see a big boom. Well, I guess what I'm saying is over time, if these steps are followed in other countries and you see a self-fulfilling, self-feeding dynamic going on between jurisdictions as they push harder and harder for deregulation, that's when you could start to see unsustainable increases in activity in certain parts of the financial services sector.

8:57But I don't think we're there yet. Certainly in the UK, what Rachel Reeves announced is on the margin, welcome in the financial services sector, but is not by any means transformational. And it certainly isn't going to lead to any radical changes in the UK's rather dismal economic performance in the near term. Sam Fleming is the FT's economics editor. Thanks, Sam. Thank you.

9:26Before we go, for ages, humans have been trying to turn things that are not gold into gold using the ancient art of alchemy. A company in San Francisco might have cracked the code. Marathon Fusion is a startup focused on nuclear fusion, and last week it released an academic paper that said it figured out how to create gold through a process called nuclear transmutation. Now, the paper has not been peer-reviewed yet, but it has gotten some positive buzz. There is a catch, though. The gold might be partially radioactive, and the company says it would have to be stored for more than a decade before it can be labeled as safe.

10:09You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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