New UK Financial Services growth and competitiveness strategy

Rachel Reeves, the UK’s Chancellor, launched a new UK Financial Services Growth and Competitiveness Strategy on 15 July. Speaking first in Leeds and then at the annual Mansion House dinner hosted by us at the City of London Corporation, she set out a ten-year vision for strengthening the UK’s position as a leading global financial centre and for financial services to be a driver for growth. This strategy is part of the Labour Government's broader “Invest 2035” industrial policy which designated financial services as one of eight priority sectors for driving long-term UK economic growth.

While the strategy is largely focused on domestic UK competitiveness, there is a striking similarity with the EU’s financial services priorities, on the Savings and Investment Union, sustainability and innovation. The Chancellor also underlined an important commitment by the Government to deliver closer cooperation with the EU and other global partners. Notably, it was the first time that an EU Commissioner for Financial Services attended the Mansion House dinner.

Below is an explanation specially crafted for our EU audience, to better understand what the priorities of this strategy are.

Core priorities

The Chancellor announced six strategic priorities for reform and growth:

1. Regulation - delivering a competitive regulatory environment.
2. Open and global markets - harnessing the UK’s global leadership in financial services.
3. Innovation - embracing innovation and leveraging the UK’s Fintech leadership.
4. Retail participation - building a retail investment culture and delivering prosperity through UK capital markets.
5. Skills - providing the UK’s financial services sector with the skills and talent it needs.
6. Regions- realising the economic potential of financial services clusters.

The Chancellor emphasised that the UK will maintain high standards of financial regulation and will align with global norms to underpin financial stability. But she also stressed the need for the UK to modernise its regulatory framework and to embrace a growth-oriented mindset in order to remain globally competitive. She said that this meant rebalancing regulation and warned that an overly risk-averse regulatory culture had discouraged investment, innovation, and entrepreneurship. There were strong echoes of the von der Leyen Commission’s calls for simplification and more competitive regulation.

Financial regulation

Financial regulation featured heavily in the package of reforms that was announced by the Chancellor (the so-called “Leeds Reforms”). The key regulatory announcements can be summarised in a few points:

• a focus on proportionate & agile supervision, including changes to the Senior Managers & Certification Regime;
• more flexible and risk-based regulation tailored to firm size (for example the PRA's strong and simple regime);
• streamlined regulatory approvals processes;
• changes to the Financial Ombudsman Service (FOS) to deliver efficient and clear dispute resolution;
• balancing robust consumer protection with market dynamism, particularly in wholesale markets (for example the FCA will review how the Consumer Duty applies to wholesale markets);
• a review of ring-fencing; and
• simplified fund and insurance regimes.

Mansion House Accord

The Chancellor also used her Mansion House Speech to welcome the efforts led by the City of London Corporation and the Association of British Insurers to encourage pension fund investment in unlisted assets such as start-ups. 17 of the largest workplace pension providers in the UK have signed the Mansion House Accord, committing voluntarily to invest 10% of assets in unlisted securities and half of those in the UK. The Lord Mayor also announced at Mansion House that a number of pension fund sponsors have come together to make an “employer pledge” to pay the higher management fees required for investing in unlisted assets.

Open and global markets

The Chancellor called for better international market access based on strategic partnerships, alliances and fast-tracked recognition of overseas regulations. Both the EU and the US are priority partners. HM Treasury is working on a streamlined “Overseas Regimes” recognition regime. This will move away from the equivalence approach inherited from EU legislation to a consolidated approach to recognising overseas standards as equivalent, making it easier for global firms to operate. Furthermore, the Berne Financial Services Agreement between the UK and Switzerland is a good example of a new approach to mutual recognition and will come into force with the beginning of next year. As I have argued before, I think there is scope for the EU and UK to explore similar ways of cooperation too.

The Chancellor also announced a new Office for Investment – Financial Services. This will be a new dedicated concierge service, to guide international financial firms through UK regulation and attract international investment into the UK. UK regions will also be pitched as global financial services destinations. This unique "Hub" service will be a public-private partnership between HM Treasury, the existing Office for Investment, the FCA, the PRA, and the City of London Corporation. We are delighted that the Government responded so positively to our proposals for such an initiative and are working hard to implement it as soon as possible.

Sustainable finance standards

The UK will continue to cooperate on the development of international standards for robust sustainable finance frameworks—and champion itself as a hub for green and ESG capital. The Chancellor confirmed that the UK will not be proceeding with its own green taxonomy, meaning firms will be able to use existing standards such as the EU taxonomy and the UK is in the process of applying the International Sustainability Standards Board (ISSB) disclosure standards.

Embracing innovation

The Chancellor said she wanted to leverage the UK’s Fintech strengths to support a new Wholesale Financial Markets Digital Strategy. This will have three pillars: market optimisation, transformation and leadership.

More broadly, the strategy commits to providing flexible legislative and regulatory frameworks to allow new digital solutions to scale rapidly and become permanent features of the UK financial system. HM Treasury and UK regulators have been consulting on a regime for stablecoins, for example. There is also a commitment to Open Finance (an extension of Open Banking) and digital identity and to improving FinTech’s access to finance. The City of London Corporation and the British Business Bank will work together to facilitate greater access to finance and commercial opportunities for fast-growing Fintech firms.

Skills and talent

The strategy comprises a number of welcome ideas to increase both the supply and the skill levels of financial services employees:

• strengthening sector-relevant education through partnership with schools, universities and professional bodies;
• attracting the world’s best financial, technical and STEM professionals through visa and global mobility programmes;
• continuous upskilling of the workforce in the financial services sector;
• promoting inclusion and diversity to increase social mobility within the sector and strengthening the talent pipeline from all backgrounds and regions; and
• the development of a skills compact to ensure the financial services sector is equipped for the future.

Realising the economic potential of financial services clusters

Finally, the Chancellor announced targeted investments and tailored regulatory guidance to nurture regional financial centres across the UK. Local Fintech, SME and specialist finance sectors will receive appropriate regulatory support and resources. Upgrades to physical and digital infrastructure should foster cluster growth and job creation nationwide.

Conclusion

The UK strategy is a sweeping and ambitious attempt to put financial services at the heart of the UK growth agenda. Its call for proportionate and competitive regulation has been warmly welcomed by industry and already taken on board by the UK regulators. There is much in this long agenda to be discussed with close allies such as the EU where similar challenges also need urgent action. Similar to the UK, the EU is working on strengthening its capital markets. Both sides can learn from each other and benefit from stronger financial markets on the other side. Both sides need to develop a retail investment culture and increase financial literacy, to see more investment in start-ups and innovative companies and to introduce simplified listing and investment research rules.

Finally, cross border investment is crucial to both sides, particularly in innovation, defence and sustainable infrastructure. Stronger interconnected financial markets would unlock more opportunities for diversification for investors and strengthen the resilience of the financial sector on both sides. It would be good to see both sides use the bilateral regulatory dialogue to discuss and exchange best practice on how more bilateral investment could be unleashed.

About the author

Nick Collier joined the City of London Corporation as Managing Director of the Brussels office in March 2019. He was previously Global Head of Government Relations at Refinitiv (Thomson Reuters). Before that he worked at a range of organisations in the financial services sector, including Morgan Stanley and the Bank of England and, until recently, served as Chair of TheCityUK’s Public Affairs Group as well as Deputy Chair of the International Regulatory Strategy Group. Nick is chair of diplomatic engagement at the International Business and Diplomatic Exchange. He holds a MSC in Economics and Finance from the London School of Economics and a BA from Oxford.