The chancellor has announced plans to reform the ringfencing rules that force UK banks to separate their retail and investment banking activities, as part of a raft of measures to soften regulations and drum up more investment in financial markets.
Rachel Reeves said the changes to the heavily criticised ringfencing rules would help to free up capital for banks as part of the government’s drive to boost growth by putting “the UK ahead in the race for financial businesses”.
The chancellor announced the regulatory shake-up — dubbed “the Leeds reforms” — in the Yorkshire city ahead of making her set piece speech on financial services at Mansion House in London on Tuesday evening.
“The measures today, the Leeds reforms, do represent the widest set of reforms to financial services for more than a decade,” Reeves said.
Setting out plans to double the growth rate in net financial services exports over the next decade, Reeves announced a string of proposals to ease areas of regulation that companies complain are weighing on activity and growth.
The Financial Conduct Authority’s flagship consumer duty rules, which require financial firms to ensure customers have good outcomes, will be curtailed to stop them applying to business-to-business activities.
The Financial Ombudsman Service will be overhauled after repeated complaints from industry that it acts as a “quasi-regulator” with plans to curb its powers by ensuring “its decisions are more closely aligned” to the FCA’s rules.
The Treasury plans to rework the regime for in-house insurance, cutting the capital and reporting requirements for entities that companies set up to protect themselves against risks to encourage hundreds of these units to be set up or brought onshore.
Other moves include the launch of a concierge service to help foreign financial services companies set up in the UK, rule changes to encourage banks to lend more to first-time buyers with lower incomes, and a plan to let listed companies raise more from share issues without a prospectus.
“We now need to work together to bring these to life, to make sure — whether it is more first-time buyers getting access to mortgages [or] more businesses getting access to capital to start up, to scale up, and then ultimately to list in the UK — that is now our job,” said Reeves.
The government is also planning to drastically slim down the senior manager and certification rules so fewer top financial staff have to be assessed for their suitability to do their role.
Reeves said the changes to the bank ringfencing rules, to be examined as part of a review led by City minister Emma Reynolds, include allowing lenders to provide riskier products to retail customers and softening the limits on back-office services provided from outside the ringfence.
Among the announcements, the UK will also press ahead with plans to ditch paper share certificates and physical investor communications in a long-awaited move to save money by digitising shareholder registers and bring the UK in line with many other countries.
Separately, Reeves gave details of plans to persuade people to switch their savings from cash Isas to stocks-and-shares Isas, in a campaign that she hopes will increase the availability of capital to growing companies and boost returns for savers.
The chancellor announced that major financial institutions would back an advertising campaign to promote the opportunities provided by investing in equities. Reeves believes consumers should be encouraged to take more informed risks.
The Treasury claimed that on current trends, moving £2,000 from low-interest accounts to stocks and shares could leave “millions of people £9,000 better off in 20 years’ time”. The Treasury said the UK had the lowest level of retail investment in the G7 group of rich economies.
The idea of promoting “popular capitalism” has drawn comparisons with Margaret Thatcher’s 1980s “Tell Sid” campaign to encourage ordinary people to invest in a privatised British Gas.
Banks would also directly promote investment opportunities to people with cash sitting in low-interest accounts for the first time. There would be a review of “risk warnings on investment products”, the Treasury said.
The reaction in the City was broadly positive, as the reforms addressed many of the main bugbears that financiers often complain about.
“Kick-starting an investing revolution could boost household finances and UK capital markets in the process,” said investment group AJ Bell’s chief executive Michael Summersgill. “Crucially, government must recognise that this can’t be achieved by diktat.”
But Romin Dabir, a partner at law firm Reed Smith, warned about the risk of leaving consumers exposed to too much risk. “Cutting unnecessary compliance burdens is always welcome but the challenge lies with identifying where to draw the line,” he said. “Risk taking should be encouraged, but only when it is done responsibly.”
Reeves has retreated from plans to announce immediate reforms to cash Isas — she had been looking to cut the tax-free amount that could be saved in such products — following a backlash from building societies and consumer champions.
The Treasury said Reeves would “continue to consider reforms to Isas and savings to achieve the right balance between cash savings and investments”. Investors in stocks-and-shares Isas will be given access to Long-Term Asset Funds, which invest in private market assets, such as private equity and infrastructure.
The chancellor also is launching a new Global Talent Taskforce to attract international specialists in the sector led by the Financial Services Skills Commission. The commission had warned of a skills gap at a time of technological and demographic change, saying a quarter of UK financial services workers were set to leave high-skilled roles over the next decade.
