Chancellor Jeremy Hunt (pictured) has unveiled plans for wide-ranging reforms to financial services regulation in an attempt to “turbocharge” economic growth.
Dubbed the ‘Edinburgh reforms’, the package consists of 30 planned changes to regulation.
Among them is the ring-fencing regime. Since 1 January 2019, the largest UK banks have been required to separate—or ring-fence—core retail banking services from their investment and international banking activities. The aim is to protect retail banking from shocks originating elsewhere in the group and in global financial markets. The ring-fencing regime will be reformed so that banks without major investment arms will no longer be subject to the scheme.
The government will also issue new remits for the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) which will offer “clear, targeted recommendations on growth and international competitiveness”.
A review to repeal EU laws ranging from prudential rules for banks to disclosure for financial products will also be introduced.
Hunt said: “Leaving the EU gives us a golden opportunity to reshape our regulatory regime and unleash the full potential of our formidable financial services sector.
“Today we are delivering an agile, proportionate and home-grown regulatory regime which will unlock investment across our economy to deliver jobs and opportunity for the British people.”
Key information documents (Kids) associated with packaged retail and insurance-based investment products (Priips) are also set to be scrapped under the reforms.
Reforms are ‘good news’ for retail investors
Industry commentators have reacted positively to the chancellor’s Edinburgh reforms.
Anne Fairweather, Hargreaves Lansdown head of government affairs and public policy, said: “The government has used today’s package of measures to underline this week’s commitment to reviewing the advice/guidance boundary. The review will be a game changer to allow firms to do all that they can to help people manage their finances better and rebuild their financial resilience over the longer term.”
She added: “Retail investors are significant shareholders in UK listed companies yet consistently get frozen out when companies raise more capital or when new companies list. Changes to the prospectus regime should focus on levelling the playing field for retail investors and remove unnecessary hurdles from their participation in these investment opportunities.
“Today’s announcement that long-term asset funds (LTAFs) are in the process of being authorised is good news [and] will allow for investment opportunities like private markets and infrastructure that have previously been hard to reach for modern workplace pensions and retail investors. The final FCA rules are due shortly which will set out how ordinary retail investors might be able to invest, but there remains need for reform to allow LTAFs to be held in Isas and Sipps.”
Chris Cummings, chief executive of the Investment Association (IA), said: “The IA shares the government’s vision for an open, sustainable and internationally competitive financial services industry that serves the interests of investors and the wider economy.
“[The] Edinburgh reforms are a very welcome acknowledgment of the need for reform to boost the UK’s place as a leading global financial services hub, and importantly, recognises the place of investment management at its heart. We will work with the government to ensure these necessary and positive reforms bolster the UK’s global attractiveness for investment management so our industry can play its part as an engine of growth and financial resilience.”
He added: “It is essential that the FCA and PRA hone their focus on competitiveness and economic growth if the UK is to retain its position as the preeminent international financial centre and to continue to attract high levels of investment.
“For our industry, there are a number of measures that we are particularly pleased to see, including the government’s support for the LTAF initiative, which will help to open access to private markets while providing greater capital for long-term investment.
“A commitment to a green strategy plan in 2023 is crucial, and we look forward to supporting urgent work on how we can transition to a more sustainable economy, so that we can work collaboratively to achieve the long-term net-zero goals. We also support the focus on regulation of ESG data to ensure there are transparent, robust and quality ESG data and methodologies to deliver clear and consistent sustainable and responsible investments to clients.”
Reforms miss fintech’s potential
But the reforms were not universally welcomed. Matt Barrett, CEO at Adaptive Financial Consulting, believes that the changes miss an opportunity to tap into the potential of the UK fintech sector.
“The UK government’s announcement of a loosening of financial services regulation to increase competition is welcome in principle. However, in practice, it will need to be executed carefully to ensure financial institutions that have spent many years and a significant amount of investment preparing for the implementation of EU-wide regulations are not caught off-side.
“As important as liberalising financial rules, maintaining high standards and making London an attractive city to do business, is playing to the UK’s strengths – particularly in its standing as a technology hub for some of the world’s most sophisticated institutions. Regulatory reform needs to have an eye to the future, with a clear vision of how London can differentiate in the long-term and reimagine its role in the global financial ecosystem beyond tradition financial services.
“The government’s homegrown rulebook contains some interesting proposals, but we would like to see more done to invigorate institutional financial technology services that are the lifeblood of the modern sector. To do this, we need to see greater incentives for firms to do business in the UK and more done to encourage and develop the best talent to work in the sector.”
He continued: “A second key impact will be in how global financial services firms adjust their infrastructure to accommodate shifting regulations. Accommodating new rules clearly does not happen overnight – it requires planning and often material changes to institutions’ operations.
“In today’s fast-changing market environment, firms that own their technology stack can update their platforms with new regulatory and market requirements quickly as they are not tied into a vendor’s timetable decision to implement these changes. Those reliant on vendor technology may struggle to adapt quickly as they are beholden to their rate of adaptation to far-reaching regulatory change.”
