"This will involve a careful balancing act and going forward a discussion will need to continue with regulators, the Bank of England as well as financial institutions to ensure that lessons learnt are not forgotten"
The Treasury has today set out the next phase of its plans to shake up the financial sector and replace key aspects of the EU regulatory regime.
Chancellor Jeremy Hunt has unveiled a 30-point package of City policy changes that will include rowing back on regulations in order to boost competition and growth.
In a speech delivered today at an industry roundtable in Edinburgh today, Hunt outlined a series of new policies explaining how the government intends to “review, repeal and replace” a host of rules that were introduced to protect savers and the taxpayer after the 2008 financial crisis, but which ministers now believe risk hindering the success of London’s banks and insurers compared with their overseas peers.
Hunt vowed to make Britain one of the world's "most open, dynamic and competitive financial services hubs" setting out sweeping post-Brexit reforms to the City that campaigners have dubbed "Big Bang 2.0".
Key announcements include a review of the 'ring-fencing' regime introduced after the 2008 financial crisis to separate banks’ retail services from riskier investment arms.
The government also committed to consulting on a Central Bank Digital Currency, as well as extending tax exemptions for international investment management to cryptoassets.
A year on from Rishi Sunak’s promise to make the UK the world’s first ‘Net Zero Financial Centre’, the Treasury has committed to publishing a delayed update to its ‘Green Finance Strategy’ in early 2023, and plans to consult on bringing Environmental, Social and Governance (ESG) ratings providers into the regulatory perimeter.
However, experts are split on whether the so-called 'Edinburgh Reforms' will create growth and opportunities in the financial services industry or whether deregukation risks 'sowing the seeds' of the next financial crisis.
Khalid Talukder, co-founder of DKK Partners, said: “With Britain facing economic turmoil and huge financial challenges, the time is right for the Chancellor to unleash the country’s potential through sweeping, but sensible regulatory reforms. The financial services industry plays a crucial role in job creation and powering the economy and driving growth. The UK must seize this opportunity and get onto the front foot and make use of first mover advantage.”
Jonathan Herbst, global head of financial services regulation at Norton Rose Fulbright, commented: “The direction of travel will definitely be welcome. There is no doubt the measures move the needle in some areas and it will be interesting to see how reforms relating to ring-fencing, the SMCR, PRIIPs, and research play out. However, it is important for people not to overplay this - there is no sense of any move back to a pre-financial crisis world. Most of the UK regulatory regime reflects either international commitments or policy developed over many years to reflect the lessons of experience. So, the talk of a Big Bang 2 may well be overdone.
“Of course, the sector will not just be reading the lines but trying to work out what lies between them. There are some interesting proposals but, in terms of the bigger picture, there is no talk here of fundamentally changing the MiFID settlement or the rest of the post financial crisis package of measures. There is little call in the City for this and most of the current law reflects international commitments.”
David Postings, chief executive of UK Finance, added: “The banking and finance industry is the engine of our economy, delivering jobs and investment up and down the country. The comprehensive package of reforms the Chancellor has announced today, coupled with the landmark Financial Services and Markets Bill, form a major step in ensuring the sector remains strong and internationally competitive. We will continue to work with the government in supporting the economy through the current challenges and in creating growth for the future.”
James Herring financial disputes partner at Addleshaw Goddard, commented: "Post-Brexit it's imperative that the UK looks to maintain the competitive edge that London still holds in terms of a place do business, with London continuing to be a place of choice for financial services businesses to operate. It is important we therefore continue to look at the regulatory environment and have a mature discussion as to whether it remains fit for purpose. At the same time we also clearly need to ensure we have in place an environment that prevents another potential crisis in the banking and financial services world. This will involve a careful balancing act and going forward a discussion will need to continue with regulators, the Bank of England as well as financial institutions to ensure that lessons learnt are not forgotten whilst at the same time making the most of the competitive advantage that now exists post Brexit by not over-regulating."
However, Nick Dearden, director of Global Justice Now, said: “Today it’s clear that Rishi Sunak’s plan for growth is to sow the seeds of the next financial crisis. His plan will be built on shredding rules which were designed to keep the public and our economy safe. It will unleash the greed of the City to gamble with people’s lives, just as Margaret Thatcher did in 1986.
“From scrapping rules on commodity speculation to consulting on removing limits on short selling, this is a recipe for a Wild West banking system that puts everyone’s future prosperity at risk. The banks should serve society, not the other way round. Sunak’s second ‘big bang’ is not a Brexit dividend – it’s a straightforward slash and burn operation on behalf of the super-rich, who now have one of their own in Number 10.”
Fran Boait, executive director at Positive Money agreed, adding: “Behind the spin, today’s announcements amount to wide-ranging deregulation that threatens to destabilise an increasingly fragile financial sector, with huge risks to the public and little benefit.
“Ring-fencing for banks was one of the few protections brought in after the 2008 crisis, so for the government to be watering down these rules is extremely concerning.
“With new objectives for regulators to promote the ‘international competitiveness’ and growth of the financial services sector, we are likely seeing only the beginning of a race to the bottom on standards.”
