Regulation of the UK financial sector remains "robust" despite relaxation of banking safeguards, according to the Prime Minister. An overhaul of banking rules was announced on Friday, which saw the easing of safeguards introduced after the 2008 financial crisis.
Chancellor Jeremy Hunt said the so-called “Edinburgh reforms” of 30 changes will “turbocharge” growth including by easing capital requirements for smaller lenders. But some critics have said the changes will introduce more risk and instability.
Rishi Sunak, who previously worked in investment banking, denied he was acting recklessly by relaxing the rules. “No, the UK has always had and always will have an incredibly respected and robust system of regulation for the financial services sector,” he told broadcasters during a visit to RAF Coningsby in Lincolnshire.
“But it’s also important to make sure the industry is competitive – there are a million people employed in financial services and they’re not just in London, in the city. They’re spread across the country, in Edinburgh, in Belfast, in Leeds, in Bournemouth.
“Today’s reforms will ensure the industry remains competitive, we can create more jobs, but of course this will always be a safe place where consumers will be protected.”
Mr Hunt said he was mindful of the lessons of the 2008 crisis that saw some UK banks face potential collapse and was acting “very carefully” as he loosened rules introduced in response.
These include ringfencing rules to separate risky investment banking from retail operations and the regime introduced to hold bankers directly accountable to issues on their watch. Labour warned of a “race to the bottom” as the changes introduce “more risk and potentially more financial instability”.
Fran Boait, executive director of the sustainable economy campaign group Positive Money, said: “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.”
Mr Hunt insisted that his overhaul of banking regulations do not mean he has forgotten the lessons learned following the 2008 financial crash. Asked during the Financial Times’ Global Boardroom webinar if the reforms dial up risk, he responded: “Absolutely not.
“We have to make sure that we do not unlearn the lessons of 2008, but at the same time recognise that banks today have much stronger balance sheets, and we have a much stronger resolution system if things do go wrong. In that context, it is perfectly sensible to make pragmatic changes just as the ones we are announcing today.
“But we are doing so very, very carefully to make sure that the UK is competitive, exciting, the place to be and the place to invest, but also that we don’t lose the guardrails that were put in place after 2008.”
The raft of reforms comes after the City of London has seen trading with the EU impacted upon by Brexit, with Amsterdam overtaking London as Europe’s largest trading hub last year. The Chancellor’s shake-up includes a commitment to make “substantial legislative progress” on repealing and replacing the Solvency II directive next year, which is hoped will unlock more than £100 billion of private investment.
He also promised to reform the UK prospectus regime to support stock market listings and capital raises, reforming rules on real estate investment trusts and reviewing provisions on investment research in the UK. Labour’s shadow city minister Tulip Siddiq said: “That this comes after the Tories crashed our economy is beyond misguided.
“Reforms such as ring-fencing and the senior managers’ regime were introduced for good reason. The City doesn’t want weak consolation prizes for being sold down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.
“Its competitiveness depends on high standards, not a race to the bottom.”
But Liberal Democrat Treasury spokeswoman Sarah Olney said: “It’s completely tone-deaf that this Government is hiking taxes for hard-working families, while slashing taxes and boosting bonuses for the banks. Our financial services need good and smart regulation, not more promises of slashing red tape, or a race to the bottom.”
