Chancellor Rachel Reeves (pictured) has introduced a package of reforms to drive growth and competitiveness in financial services.
Reeves argued that regulatory changes to eliminate risk after the financial crisis have “gone too far” and led to unintended consequences.
In her first Mansion House speech as Chancellor, Reeves said the UK’s status as a global financial centre must not be taken for granted.
She said that, while the UK will always uphold high standards, a system was created which wought to eliminate risk taking, holding back economic growth.
She said: “The UK has been regulating for risk, but not regulating for growth.”
The Chancellor outlined a plan to rebalance the system, setting the financial services sector up to innovate, grow and seize the opportunities for investment in businesses, infrastructure and clean energy across Britain.
This included setting growth-focused remits for financial service regulators, the publication next year of the first Financial Services Growth and Competitiveness Strategy, and creating pension mega funds to boost investment so that ordinary people benefit from growth.
Speaking in the City of London, the Chancellor of the Exchequer Rachel Reeves said: “Before we came into government, I was clear that the financial services sector must play a central part in our economic vision and our plan for economic growth.
“Because I know that this sector is the crown jewel in our economy. It employs 1.2m people, from London to Edinburgh, and from Manchester to Belfast.
“It is one of the country’s largest and most productive sectors, accounting for 9% of our economic output.
“And it is a global success story: we are the second largest exporter of financial services in the G7.
“But we cannot take the UK’s status as a global financial centre for granted.
“In a highly competitive world we need to earn that status and we need to work to keep it.”
She added: “While it was right that successive governments made regulatory changes after the Global Financial Crisis, to ensure that regulation kept pace with the global economy of the time, it is important that we learn the lessons of the past.
“These changes have resulted in a system which sought to eliminate risk taking. That has gone too far and, in places, it has had unintended consequences which we must now address.”
Reeves concluded: “The changes I have set out today will drive growth and competitiveness through investment and through reform.
“A long-term strategy to harness the strengths of the financial services sector: making the UK a global leader in sustainable finance, developing the right approach to redress to reduce uncertainty, reinvigorating our capital markets by unlocking private investment through our pension funds, and reforming our approach to regulation to make it more dynamic and more competitive.
“Taken together, these measures represent the most pro-growth financial services package since the financial crisis.”
High regulatory standards will be maintained but parts of the regulatory system will be rebalanced to drive economic growth and competitiveness.
The Chancellor wrote to the Financial Conduct Authority (FCA), Prudential Regulation Committee, Financial Policy Committee and Payment Systems Regulator to ensure a greater focus on supporting economic growth.
The Financial Ombudsman Service framework will also be modernised so that it continues to play a vital role for consumers to get redress while giving clearer expectations around its decisions for consumers and for financial services firms.
The Government will consult on replacing the current Certification Regime, which applies to staff below senior management level, with a more proportionate approach that reduces costs so that businesses are freed up to focus on growth.
To combat fraud, which cost UK consumers almost £8.3bn last year alone, the Chancellor, Home Secretary and Secretary of State for Science, Innovation and Technology therefore wrote to the tech and telecommunication sectors, calling for them to go further and faster in reducing the scale of fraud taking place on their platforms and networks – with an update on progress requested by March 2025 ahead of an expanded fraud strategy.
Further action is being taken to drive innovation in payments with the publication of a National Payments Vision, and reinvigorate the UK’s capital markets by committing to legislate to establish PISCES by May 2025.
The Government launched a pilot to deliver a Digital Gilt Instrument, using distributed ledger technology (DLT), demonstrating the government’s commitment to innovation in the financial services sector.
The Government is also consulting on introducing a new framework for UK-based captive insurance companies to make the UK insurance market a more attractive hub for businesses seeking efficient risk solutions.
The Government will publish the first ever Financial Services Growth and Competitiveness Strategy in the Spring to deliver long-term certainty and cement the sector’s place at the heart of the Government’s 10-year modern Industrial Strategy.
The Government proposed focusing on five priority growth opportunities in financial services to take advantage of the UK’s existing strengths and maximise the potential for growth.
These will be FinTech, sustainable finance, asset management and wholesale services, insurance and reinsurance, and capital markets.
The Chancellor set out plans to mobilise trillions of pounds of private capital to support clean energy and growth.
This followed action at the International Investment Summit and Budget to unlock investment, including £27.8bn of capitalisation for the National Wealth Fund, which is expected to mobilise over £70bn of private investment.
The Treasury will publish draft legislation to boost investor confidence in sustainable companies by regulating ESG ratings providers, publish a consultation on the value case for a UK Green Taxonomy, commit to consult on economically significant companies disclosing information using future UK Sustainability Reporting Standards and launch a set of integrity principles for voluntary carbon and nature markets ahead of a consultation in the new year.
These announcements came alongside COP29’s ‘Finance, Investment, and Trade Day’ currently underway in Baku, Azerbaijan.
The Chancellor will also announce an upcoming Financial Conduct Authority consultation to help households make better-informed decisions about their finances, as part of the government and regulator’s joint Advice Guidance Boundary Review.
Reaction:
David Postings, chief executive at UK Finance:
“The Chancellor has set out a positive vision for financial services, which are a UK success story and vital to our economy.
“I strongly welcome her support for the sector, coupled with the fact that she is addressing how we can best balance risk and consumer protection to help support economic growth.
“Key to this is the regulatory environment, with the new remit letters rightly stressing the importance of growth and competitiveness in regulators’ work.
“The Chancellor has listened to industry and is delivering across a range of areas we have called for action on, including a digital gilt, tackling payment fraud, reforming the Financial Ombudsman Service, supporting green finance, and the National Payments Vision.
“I look forward to continuing to work closely with her and the government to ensure the UK retains a strong and globally competitive financial services sector.”
Michael Moore, chief executive at BVCA:
“The private capital industry warmly welcomes the decisive action taken by government to reform our pensions system to boost investment and deliver growth to the UK economy.
“Creating greater opportunity for investment by pension funds into private capital could have a transformational impact on the UK’s most promising businesses whilst delivering strong returns for pension savers.”
Richard Oldfield, group CEO of Schroders:
“We have all the building blocks we need to generate growth in the UK. We have great, innovative companies; we have the capital, and we have the expertise and a world class capital market to link the two.
“What we need now is an injection of optimism and a healthier attitude to taking risk in the pursuit of reward.
“It is great to see the government putting sensible risk taking back at the centre of our economy.
“Whether that’s on green finance, infrastructure, science or tech; firms like Schroders working in partnership with pension schemes, regulators and the government can unlock the potential of the UK for the benefit of all of us.
James Alexander, CEO of UKSIF:
“We welcome the new Chancellor’s prioritisation of sustainable finance in her first Mansion House speech.
“We are pleased to see this ambitious suite of measures including further progress on transition plans, harmonisation with international standards, and carbon market integrity.
“If delivered, these measures could position the UK as a world-leading centre for sustainable finance.”
