Delivering her first Mansion House speech, Chancellor Rachel Reeves started by reiterating that 'economic growth' is the 'national mission'. The Chancellor reviewed some of the plans which she had set out in her first Budget which seek to tackle some of the longstanding issues in the supply-side of our economy before moving on to speak about her plans for financial services, 'the crown jewel' of the UK economy.
A key theme of the speech is the focus on removing barriers to growth and investment, highlighting that the UK’s status as a global financial centre cannot be taken for granted. With that in mind, the Chancellor has announced a number of important reforms, some of which are a continuation of existing initiatives being taken to the next stage, but also including proposals in some new areas. The implications and benefits of the reforms will crystallise over time along with the emerging detail, but overall this is a helpful recognition of the role that financial services can play in the growth agenda and that calibrating regulation appropriately is key to making the sector more dynamic and competitive.
Highlights
Highlights of the speech include the following views and proposals:
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The approach to regulation is a critical part of the economic reform needed to unlock the full growth potential of the British economy – 'the key test for regulation is whether it will make our economy more dynamic and more competitive'.
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In Spring, the government will publish a Financial Services Growth and Competitiveness Strategy, which is intended to give the financial services sector the confidence it needs to invest. The focus will be on five priority growth opportunities:
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fintech;
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sustainable finance;
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asset management and wholesale services;
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insurance and reinsurance; and
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capital markets.
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While it was right that successive governments made regulatory changes after the Global Financial Crisis, these changes have resulted in a system which sought to eliminate risk taking and that has gone too far and had, in places, unintended consequences.
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While the SMCR has helped to improve standards and accountability, some elements of it have become overly costly and administratively burdensome. HM Treasury, the FCA and the PRA will shortly publish the outcomes of the review of the SMCR. There will be a consultation on removing the current Certification Regime from legislation.
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Post-crisis pay structures have made the UK an international outlier on deferral arrangements. The PRA will consult on reducing the length of pay deferrals.
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Some regulatory requirements are duplicative and could be streamlined. The Chancellor awaits the outcomes of the FCA’s Handbook Review.
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While regulation has been successful in improving the quality of financial advice being offered to consumers, many people do not get the help with their finances that they want and need. The FCA will shortly consult on transformational changes to financial advice and guidance to address this.
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The Chancellor supported the last government's legislation to make growth and competitiveness secondary objectives for the financial services regulators. She has issued new growth-focused remit letters to the FCA, PRA, Monetary Policy Committee, Financial Policy Committee and PSR which make clear that they are expected to fully support this government’s ambitions on economic growth.
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The Chancellor acknowledged that many in the industry have commented that the approach to redress can cause uncertainty and be a drag on investment. She noted that the Financial Ombudsman Service (FOS) plays a vital role for consumers to get redress when things have gone wrong and said that this will not change. However, reform is needed to create a surer climate for investment, so the FCA and the FOS have worked together to develop a new agreement with clearer expectations on how they cooperate including on historic market practice and mass redress events. A joint Call for Input will be published on 15 November which will seek to significantly improve the rules governing how the FOS operates.
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Because reforming capital markets is a priority, the government is committing to legislate to establish PISCES, an innovative new stock market, by May 2025 (see further below on this).
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To support innovation in the financial services sector, a pilot to deliver a Digital Gilt Instrument (DIGIT) using distributed ledger technology will be launched.
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As insurance markets are also pivotal in supporting growth, a consultation on captive insurance has been launched alongside the speech.
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Alongside the regulators’ continued efforts, further steps to improve the UK’s Insurance Linked Securities offer are also being considered.
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To protect the integrity of the financial services sector, the government is working with tech platforms and telco networks to reduce the scale of incidence and losses from fraud.
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To empower female entrepreneurs and support women in business, the government is backing the ambitious work of the Invest in Women taskforce alongside the Women in Finance Charter.
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To support the mutual sector, a call for evidence on the credit union ‘common bond' is being launched and the government is asking regulators to report on the mutuals landscape.
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The National Payments Vision is being published which includes decisive action to progress Open Banking and support fintech businesses.
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The PRA, HM Treasury and the National Wealth Fund will work together to 'crowd in investment by insurers' into productive assets, taking full advantage of the new Solvency UK regulatory regime. This will include investment in clean energy projects.
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In the week that the Prime Minister welcomed the launch of the Climate Investment Fund Capital Market Mechanism on the London Stock Exchange, the Chancellor announced that the government will be co-launching the Transition Finance Council alongside the City of London Corporation.
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On pension funds, the Chancellor wants to take the previous government's reforms further, which is why the government announced the Pensions Investment Review led by the first ever joint Treasury and DWP Minister for Pensions, Emma Reynolds. The interim report of the Pensions Investment Review was published alongside the speech and confirms plans to create 'Canadian and Australian style-'megafunds' to power growth'. The government will legislate for these changes in the Pension Scheme Bill next year. A significant consolidation of the Defined Contribution market will be delivered with legislation to consolidate the Local Government Pension Scheme.
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The UK faces headwinds of geopolitical uncertainty, with competition for economic opportunities. The country faces structural challenges, including those which have come from Brexit. As such, 'free and open trade' with both the US and the EU are important. But the government 'will not be reversing Brexit or re-entering the single market or customs union'. Other important economic opportunities for the UK are presented by fast-growing economies like India, China and the Gulf states.
Further updates
The government has also published various papers and updates alongside the speech:
Financial Services Growth and Competitiveness Strategy: In advance of the publication of the strategy in Spring 2025, the government has published a Call for Evidence which outlines the government’s proposed approach. Once developed, the strategy will serve as the central guiding framework through which the government will deliver 'sustainable, inclusive growth' for the financial services sector and secure the UK’s competitiveness as an international financial centre. The Call for Evidence closes on 12 December 2024.
MiFID: The government has restated its commitment to 'make further legislative changes to the MiFID framework as part of the government’s commitment to reinvigorate our capital markets so that they deliver for investors, for firms, and to support growth across the UK' and published an update on next steps.
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To support the FCA’s work in the UK’s commodity derivatives markets, HM Treasury has committed to legislate to give the FCA fuller powers of direction in relation to the reporting of OTC positions.
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HM Treasury has committed to start the revocation of firm-facing requirements in MiFIR that relate to transaction reporting, and delegate the setting of a new regime to the FCA.
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HM Treasury will also revoke the firm-facing regulations within the MiFID Organisational Regulation so that they can be replaced in the FCA’s handbook.
HM Treasury will liaise with the FCA and PRA to ensure that any revocations coincide with the FCA and PRA’s replacement rules and provide a smooth transition for firms.
Private Intermittent Securities and Capital Exchange System (PISCES): The consultation response summarising the feedback to the March consultation has been published. The paper sets out how the government intends to design the regulatory framework for PISCES in light of the views received.
The draft legislation to establish PISCES, together with a policy note, have also been published. The legislation will establish the PISCES sandbox and, alongside FCA rules, will set the regulatory requirements for PISCES. Feedback is requested by 9 January 2025.
Sustainability: The government has published a consultation on the UK Green Taxonomy to inform an assessment of the value of implementing a UK Taxonomy. The consultation seeks views on whether a UK Green Taxonomy would be additional and complementary to existing sustainable finance policies, including in supporting market participants to make sustainable investment decisions, and the specific market and regulatory use cases which facilitate this. The consultation does not seek detailed feedback on specific activity-level standards, nor does it cover the wider UK climate and environmental strategies, beyond sustainable finance.
The government has also published the outcome to its consultation on the future regulatory regime for ESG ratings providers and a draft statutory instrument amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 so that the provision of ESG ratings becomes a regulated activity. Comments on the draft legislation should be submitted by 14 January 2025.
Mutuals: The Economic Secretary to the Treasury, Tulip Siddiq MP, has written to the CEOs of the FCA and PRA requesting that the regulators produce a report assessing the current mutuals landscape before the end of 2025.
National Payments Vision: The government has published the National Payments Vision which responds to the findings of the independent Future of Payments Review 2023.
Papers on Credit Union Bond Reform, captive insurance and the Pension Investment Review have also been published:
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