The Conservatives, Labour and Liberal Democrats election manifestos have now all been published. Labour also published its 'Financing growth – Labour's plan for financial services' in January 2024.
This briefing highlights:
- Key proposals from the three main UK parties which are likely to have most impact on the regulation of banks and other financial sector institutions.
- What the manifestos (and Labour's January 2024 plan) tell us about new areas of regulatory reform under a Labour or LibDems government, as well as existing reform initiatives they would keep.
Manifestos - General Observations
None of the manifestos has a dedicated section on financial services nor much to say about the sector. Labour's January 2024 Plan, by contrast, recognises the significance of the sector and has a number of specific proposals, covering delivering inclusive growth by scaling regional UK centres; enhancing international competitiveness; reinforcing consumer protection and financial inclusions; sustainable finance; embracing innovation and fintech; and reinvigorating UK capital markets (including pension and retirement savings).
Same path?
In some areas of in-flight regulatory reform, it is not clear from the Labour or LibDems manifestos whether or not they would continue the initiatives or, if so, how vigorously. Selected examples:
- Removal/replacement of retained EU law (which according to the Conservative manifesto is half complete): neither manifesto mentions this. The implication is that the programme would continue.
- Edinburgh Reforms: Labour's Plan cites the Treasury Select Committee's comments on this being a "damp squib", but does not comment on which elements of the wide-ranging package Labour supports (or not).
In other areas, the Labour and LibDems manifestos seem to indicate that the current Government's regulatory reform agenda may be continued. Selected examples:
- Simplifying the FCA rule book, in line with outcomes-focused regulation (Labour): This is not a new idea. But interestingly, Labour focuses on the new FCA Consumer Duty as a driver for streamlining the rules, stripping out redundant detail. Presumably, the same outcomes-focused approach should apply to wholesale market business not covered by the Consumer Duty. Streamlining is easier said than done. It could take several years, and, if not carefully managed, trigger unintended consequences and (at least initial) uncertainty.
- Simplifying and updating the Consumer Credit Act regime with an outcomes-focused approach fit for the digital age (Labour): this was part of the December 2022 Edinburgh Reforms package.
- Closing the advice gap (Labour): despite a lukewarm industry response to the HMT/FCA advice/guidance review in 2023, Labour seems committed to finding ways to increase the availability of retail investment guidance, increasing financial inclusion and retail investment.
- Bank ring-fencing (Labour): Labour is committed to upholding the ring-fencing regime to protect financial stability. It also supports the on-going work to align with the resolution regime, as recommended by the Skeoch Review.
- Use of AI in financial services (Labour and LibDems): all three manifestos highlight the usefulness of AI, as well as the need for a regulatory framework targeted at AI. But apart from leveraging data and AI to produce widely accessible and affordable financial guidance tools (Labour), there are no specific use cases mentioned.
- Securities tokenisation: Labour's vision to work with regulators to make the UK a global hub for securities tokenisation would build on the current Government's work setting up the Digital Securities Sandbox framework.
Change of direction or priority?
But there are several areas where the Labour and LibDems manifestos suggest new regulatory reforms, or higher priority for existing initiatives. Selected examples:
New reforms
- Innovation: creating a cross-sectoral regulatory framework for AI (LibDems).
- Financial inclusion:
- Requiring the PRA and FCA to have regard to financial inclusion (e.g. protecting access to cash, expanding access to bank accounts, supporting vulnerable customers and delivering Sharia-compliant student finance) (LibDems). Previous attempts to extend the FCA's statutory duties to cover financial inclusion (such as during discussions on the Financial Services and Markets Bill) have failed. The FCA has not supported such an extended remit - it does not consider it has all the tools to unlock financial inclusion.
- Promoting a regulatory sandbox for financial products for underserved customers (Labour).
- International competitiveness - EU relationship: re-setting the UK's relationship with the EU, to increase cross-border trade (Labour and LibDems). The LibDems would seek to join the single market; Labour would not. The LibDems long-term objective is to re-join the EU.
Higher priority?
- Simplification of regulation (Labour): Labour sees the new FCA Consumer Duty as a basis for removing layers of detailed FCA rules and streamlining the rulebook.
- Innovation: securities tokenisation; CBDC; and AI (e.g. as tool for investment guidance) (Labour).
- Consumer protection: regulation of Buy-Now Pay-Later (BNPL) (Labour). This could mean a stronger push to speed up to the process of bringing currently-exempt BNPL products into regulation. Progress has been slow so far: draft legislation was published in March 2023, two years after the current government announced its intention to regulate these products in response to the findings of the Woolard Review.
- Financial inclusion: introducing a national financial inclusion strategy, including support for vulnerable customers (LibDems). Vulnerable customers is already a key FCA focus, particularly under the Consumer Duty.
- Promotion of retail investment into UK capital markets: pensions and retirement savings reform to promote more retail investment (Labour). This will be no small task.
- ESG and sustainable finance:
- exploring bank/insurer issued covered bonds secured on green infrastructure (Labour).
- Labour's published plan for sustainable finance is quite vague. Although details of its sustainability policy is lacking, we have heard that Labour is developing a new policy that will accelerate the implementation of transition plans requirements across the UK economy. There are rumours that Labour would consider adding climate change responsibility to the remits of regulators, including the PRA and the FCA, either as a secondary objective or as a 'have regard'. There is also talk of pushing for climate risks and ESG to be more explicitly incorporated into bank capital requirements. The LibDems want to regulate financial services to encourage climate-friendly investments, but there is no detail how.
- International competitiveness - EU relationship: setting up a new Regulatory Innovation Office to promote transparency of the regulator (Labour).
Highlights from proposals
|
|
Conservatives |
Labour |
LibDems |
|---|---|---|---|
|
Simplification of regulation |
Continue implementation of:
|
Rulebook: streamline the regulatory rulebook to align with the Consumer Duty, i.e. streamline 'duplicative and excessively procedural rules' in the FCA rulebook. Labour will direct the FCA to issue an open call to industry, to identify rules made redundant by the new duty. Consumer Credit Act: update the regime to provide an outcomes-based approach fit for the digital age. |
|
|
Innovation - Digital assets, AI |
Nothing specific in manifesto. Ongoing initiatives include:
|
Securities tokenisation: make the UK a global hub for securities tokenisation. Including advancing work to clarify the law around tokenisation; working with regulators to establish a proportionate, outcomes-based regulatory regime to oversee the technology; advance the FMI sandbox work; and explore the possibility of a tokenised gilts pilot. CBDC: advance the ongoing work to create a UK central bank digital currency. AI: set international standards for the use of AI in FS. Noted that 'consumer protection must come first'; and Labour will aim for 'an agile approach to regulation so that the technology can be utilised by firms … to boost growth in every part of the economy'. Retail payments: deliver the next phase of Open Banking to unlock increased competition in retail payments. |
|
|
Protecting consumers |
Maintain high standards of consumer protection (and prudential regulation). |
Generally: achieve a 'balance between consumer protection, competitiveness and financial stability in defining our policy agenda'. Buy now pay later: regulate the BNPL sector. Payment fraud: empowering payment service providers to delay possibly fraudulent payments. |
Payment scams: require banks to reimburse victims of automated push payment scams unless there is clear evidence that the victims are at fault. |
|
Financial Inclusion (including SME lending) |
SME lending:
|
Advice gap: reform the advice/guidance boundary. Support FS firms to leverage data and AI to produce widely accessible and affordable financial guidance. Open Banking and Open Finance: support these initiatives. E.g. eliminate penalties for failed direct debits; and expansion of regional 'banking hubs' (for free access to cash and wider banking services). |
Introduce a national financial inclusion strategy. Requiring the FCA and PRA to consider financial inclusion, including access to cash, especially in remote areas. Supporting banking hubs. Expanding access to bank accounts. Delivering Sharia-compliant student finance. Supporting vulnerable consumers. SME lending: work with major banks to fund the creation of a local banking sector dedicated to meeting the needs of local small and medium-sized businesses. |
|
Capital markets and retail investment |
Nothing specific in manifesto. |
Increase investment in UK capital markets. Including:
|
Expand the British Business Bank to perform a more central role in the economy, to ensure that small and medium-sized enterprises have access to capital, and enable it support ‘crowd-in’ private investment, in particular in zero-carbon products and technologies. |
|
ESG and sustainable finance |
Nothing specific in manifesto, but in an update published just before the election was called, the current government indicated the following:
|
Give investors the certainty they need to invest in the UK. Deliver a world-leading green finance regulatory framework. Including:
Explore the potential for nature-related finance. Ask the PRA, FCA and HMT to consult on allowing banks and insurers to issue covered bonds secured on green infrastructure. |
Generally: regulate financial services to encourage climate-friendly investments. Transparency: require pension funds and managers to show that their portfolio investments are consistent with the Paris Agreement. Enforcement: create new powers for regulators to act if banks and other investors are not managing climate risks properly. |
|
International competitiveness (incl EU) |
Relationship with EU:
|
Improve the efficiency of regulatory / supervisory authorities: promote a joint approach focused on innovation. including:
Ring-fencing: uphold the bank ring-fencing regime; and support the on-going work to align with the resolution regime, as recommended by the Skeoch Review. Relationship with EU:
|
Relationship with EU: four-step plan to reset UK-EU relations. Nothing specific to financial services. Step 4 is to seek to join the EU Single Market. The longer-term objective is to re-join the EU. |
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