UK Chancellor Rachel Reeves has once again reiterated the government’s desire to ease regulation in order to boost economic growth, calling some existing regulatory practices unsuitable for a “competitive world.”
In her debut Mansion House speech in London on Thursday evening, Rachel Reeves said that “regulations from the days of the financial crisis of 2008 had gone too far,” and that there was a need for a review in certain areas.
“Improving economic growth has been at the very heart of everything that I am seeking to achieve. And a new approach was required to build secure and sustainable growth,” she told an audience including bosses from some of the city’s major banks and investment firms.
The chancellor insisted that financial services must play a central part in the UK’s economic vision and the government’s plans for economic growth. She called the sector “the crown jewel in our economy.”
She also defended the government’s recently announced reforms to banks’ capital requirement, stressing that it will “ensure that banks are well-capitalised, working side by side with the Governor, strengthening the resilience of our banking system, whilst protecting banks’ ability to lend to small and medium enterprise, and also for infrastructure.”
Financial growth strategy
Reeves also announced the publication of a first-ever Financial Services Growth and Competitiveness Strategy in the coming spring. She said the strategy “will give the financial services sector the confidence it needs to invest.”
And in another indirect reference to what the current government calls ‘unnecessary regulatory bureaucracy’, the Chancellor said: “We must constantly work to remove barriers to growth and investment. This approach will ensure that we promote our strengths across the world”
She set out the five, priority growth opportunities on which that strategy will focus.
- fintech;
- sustainable finance;
- asset management and wholesale services;
- insurance and reinsurance;
- capital markets.
Reeves also said she wanted to be clear-eyed about the context in which the UK and its businesses will be operating under in the years ahead. “We face geopolitical uncertainty. There are other countries who are looking for the very same economic opportunities as we are,” she said.
She also promised that the UK will use its digital technology more effectively. “Our approach to regulation is a critical part of that,” she stressed.
Review of government guidance
Reeves repeated a similar message that had already come from Prime Minister Keir Starmer, that “the key test for regulation is whether it will make our economy more dynamic and more competitive.”
In that context, she promised that the government “will review the strategic guidance that we give to the CMA and to other major regulators to underline the importance of growth. That includes our financial service regulators.”
The chancellor said It was right that successive governments made regulatory changes after the Global Financial Crisis, but stressed that it was important to learn the lessons of the past.
“These changes have resulted in a system which sought to eliminate risk taking. That has gone too far and, in places, it has had unintended consequences that we must now address,” she said in reference to tough regulatory practices introduced more than a decade ago.
She mentioned four specific areas that could benefit from future potential regulatory reforms, including:
- While the Senior Managers and Certification Regime has helped to improve standards and accountability, some elements of it have become overly costly and administratively burdensome. So the Treasury, the FCA and the PRA will shortly publish the outcomes of a review.
- As the PRA has acknowledged, post-crisis pay structures made the UK an international outlier on deferral arrangements. So the government will support their intention to consult on reducing the length of pay deferrals, helping firms to attract and retain talent.
- Some of the UK’s regulatory requirements are duplicative, and they could be streamlined. So Reeves is looking forward to seeing the outcomes of the FCA’s Handbook Review which can free up resources for businesses to innovate and to grow.
- 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. So the FCA will shortly consult on transformational changes to financial advice and guidance to ensure that people get the right support.
According to Reeves, these examples showed the UK had been regulating for risk, but not regulating for growth. She was clear that now is the moment to rebalance the UK’s approach and take forward the next stage of reforms needed to drive growth, competitiveness and investment.
She also took a dig at the last government, saying it introduced legislation to make growth and competitiveness secondary objectives for UK regulators.
Reeves went on to announce that government had issued new growth-focused remit letters to the FCA, Prudential Regulation Committee, Monetary Policy Committee, Financial Policy Committee and the Payment Systems Regulator.
“These make clear that I expect them to fully support this government’s ambitions on economic growth. I welcome the work that the FCA and PRA have already started, and I look forward to seeing their next steps to deliver that growth and competitiveness,” she said.
The Chancellor rounded up her speech by stressing, once again, that “reform is needed to create a surer climate for investment.”