Josie Day, financial Services regulation expert at Pinsent Masons, was commenting after chancellor Rachel Reeves used her annual ‘Mansion House’ speech to announce the UK’s financial services growth and competitiveness strategy, alongside a package of proposed changes known as the ‘Leeds Reforms’.
Day said: “In the Mansion House speech Reeves announced the government’s approach to regulating the financial services sector for growth, not for risk. Reeves set out her stall in the strategy supported by the Leeds Reforms.”
Reeves described the reforms as the most wide-ranging package of reforms for financial services regulation in more than a decade. The strategy provides more detail on the government’s approach to reform over the next 10 years. It is initially focussed on five areas: a more competitive financial services regulatory environment; the UK’s international position in financial services; innovation and fintech; retail investment, and the sector’s skills base.
The strategy is being kick-started now by the Leeds Reforms. Reducing red tape is a sector-wide theme in the Leeds Reforms with implications for both wholesale and retail markets.
An example is a policy statement (456-page / 3.26MB PDF) from the Financial Conduct Authority (FCA) with new rules for public offers and admission to trading. These reflect the ‘deregulatory’ theme of the Leeds Reforms, with the hurdle at which a prospectus is required for a further issue of transferable securities that are already admitted to trading being raised from 20% to 75% of such securities. In the policy statement the FCA echoed the sentiment that investment is not and should not be risk free, and that it is aware that by making changes removing barriers to retail investment, investors may now receive less information when companies are raising capital. The FCA’s ongoing consultation on targeted support for pensions and investments similarly seeks to encourage retail investment.
The Leeds Reforms also seek to stimulate international business, by encouraging overseas companies to do business in and with the UK by setting up a new ‘Office for Investment: Financial Services’. This is envisaged as a one-stop-shop concierge service to support international investors setting up or growing their presence in the UK’s financial services sector.
Reforms
to support cross-border business include new government guidance on financial
services overseas recognition regimes and its announcement of the timeframe for
implementing the Berne Financial Services Agreement, a mutual recognition
agreement for certain financial services to be provided between the UK and
Switzerland to wholesale and sophisticated clients.
The
government’s proposals also focus on job and wealth creation in the UK with
initiatives to support the financial services ‘clusters’ across the UK and bolster
their contributions to the local and wider economy. The strategy contains initiatives including
the British Business Bank’s Cluster Champions programme, the Mayoral Recyclable
Growth Fund for Mayors in the North and Midlands, alongside a drive to improve skills
provision for the sector overall. This is to be done via a skills compact with
the Financial Services Skills Commission, among others.To promote fintechs and the UK as a base for fintechs at both the start-up and scale-up stages, the government’s strategy outlines a range of initiatives spanning industry, government and regulators. These include the FCA and Prudential Regulation Authority Scale-Up Unit, and the proposal for part of the government’s TechFirst programme to encourage a quota of PhD students to engage in financial services research. Reforms proposed to reduce the timeframes for authorisation by regulators and changes to the senior managers and certification regime may also be beneficial in promoting such businesses, as well as visa reforms.
The strategy also proposes an artificial intelligence (AI) champion in financial services and for research and development funding to be geared towards research and development relevant to the eight sectors the government identified as growth-driving, of which the financial services sector is one.
“There are more specific moves afoot as well relevant to particular parts of the sector,” Day said. “One example is to modernise the legislative framework for payment services and e-money. The government has an eye to promoting innovation as well as responding to market developments, such as stablecoin. More broadly, open finance is also on the agenda with the strategy showing that the government is to work with the FCA to set out an open finance roadmap by March, which should be useful clarification for industry.”
For insurers, the Leeds Reforms and strategy is a reinforcement of the government’s ambitions to “double down” on the country’s strengths in the insurance space. Proposals include streamlining current product governance and fair value requirements, as well as reforming conduct requirements for commercial and bespoke insurance business and removing unnecessary consumer protection obligations on insurers serving large or specialist customers. There are also proposals for introducing a streamlined approval process for Lloyd’s of London managing agents; for worldwide promotion of the UK’s insurance industry; for delivering a new, tailored regime for captive insurance; and for consulting on a more flexible risk transformation regime, including reforming the UK’s insurance linked securities framework.
Insurers will also benefit from the overarching proposed reforms of reduced authorisation and variation of permissions approval times and the streamlining of the senior managers and certification regime.
Eleanor Geraghty, insurance expert at Pinsent Masons, said: “While the proposed areas of reform do not make for any particular new reading, it is good to see such reforms remaining on the government’s shopping list for the insurance market.”
For asset managers, Reeves said draft legislation would be published early next year. Legislation on the Alternative Investment Fund Managers Regulation and an FCA consultation are scheduled for next spring, according to the strategy, as well as a review of venture capital funds earlier in the year.
For retail investors, Reeves outlined measure to facilitate retail investors sharing in the UK’s economic success and to boost their participation in investment, including the ability to have long term asset funds within the ISA wrapper. There will be an industry-led campaign for consumers on retail investment and the strategy also noted that the government and the FCA will work together to roll out targeted support for consumers by ISA season next year.
The Leeds Reforms also contain proposed changes to the UK regulatory capital framework. Amending the regulatory capital framework is intended to allow the release of capital for investment and so ensure the competitiveness of UK banks.
Elizabeth Budd, financial services expert at Pinsent Masons, said: “The strategy and Leeds Reforms are a significant shift in the tolerance by the government and regulators to risk in the regulation of the financial services sector and will affect all financial services firms.”