Jeremy Hunt is set to launch a major reform of the UK’s financial sector, with plans to rip up red tape and replace reams of EU regulations.
Dubbed the “Edinburgh reforms”, the changes will be announced by the Chancellor in the Scottish city later today. as he heralded the “golden opportunity” Brexit provided to reshape the rules governing the financial sector.
Hunt will set out a package of more than 30 regulatory reforms, with plans to “review, repeal and replace” hundreds of pages of EU regulations ranging from disclosure for financial products to prudential rules governing banks.
Any rules deemed to hold back growth or that put companies off listing in the UK will be review or overhauled, as part of the bid to create a “tailor-made” UK regulatory system.
The plans come as the government pushes ahead with efforts to end the UK’s sluggish record on growth, after Liz Truss and Kwasi Kwarteng promised a similar set of reforms dubbed “Big Bang 2.0” – a reference to Margaret Thatcher’s 1986 policies which kicked off changes in the City of London.
“This country’s financial services sector is the powerhouse of the British economy, driving innovation, growth and prosperity across the country,” 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.”
Hunt, who will meet with financial services bosses in Edinburgh this afternoon, said the UK Government was 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”.
While promising to protect consumers, the government is also set to announce changes to ring-fencing rules, which currently require large banks to separate retail and investment arms.
In his autumn statement, Hunt pledged to reform Solvency II, an EU directive that codifies and harmonises insurance regulation, which should ease capital rules for the industry.
The Treasury said that reforms will build on that pledge, with the Chancellor also expected to issue new mandates to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority to ensure both help “promote the international competitiveness of the UK”.
The Edinburgh Reforms are set to include:
- Overhauling the UK prospectus regime to make it more attractive for firms to list and raise capital here.
- Reforming the rules governing Real Estate Investment Trusts to reduce friction and allow savers to more easily access higher returns.
- Formally reviewing the provision of investment research in the UK, including the effects of the EU’s MiFID unbundling rules, which aren’t applied in markets such as the US.
- Working with the regulators and companies to trial a new class of wholesale market venue that operates on an intermittent basis - improving companies access to capital before they publicly list.
- Reform to the ring-fencing regime in response to the recommendations of the Skeoch Review - including by freeing retail focussed banks from the regime.
- Long-Term Asset Funds - a new type of fund structure tailored to the UK market, replacing the EU’s European Long Term Investment Fund regime, which will be repealed from the UK rulebook.
- A consultation on proposals to modernise the Consumer Credit Act, simplifying the regime to encourage innovation in the sector and cutting costs for consumers and businesses.
- Plans to publish a consultation on proposals to establish a UK Central Bank Digital Currency, creating a 'digital pound' with underlying blockchain technology.
- Extending the Investment Management Exemption to cryptoassets, ensuring more overseas investment can flow into the sector.
- Establishing the Financial Markets Infrastructure Sandbox in 2023, allowing firms and regulators to safely test, adopt and scale new technologies that could transform financial markets.
- Committing to publish a new green finance strategy in early 2023, and to consult on bringing Environmental, Social and Governance (ESG) ratings providers into the FCA's regulatory perimeter, to ensure these products are transparent and use consistent standards.
Labour’s shadow city minister Tulip Siddiq said: “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 Prime Minister Rishi Sunak, who previously worked in investment banking, denied his government was acting recklessly by relaxing the rules.
“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.”
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