The UK Government has been toying with the idea of reforming the UK financial services sector for some time. Around the time of unveiling the Spring Budget in 2020, the then Chancellor, Rishi Sunak asked Ron Kalifa OBE to start an independent review of the UK’s FinTech sector, to identify priority areas to support the sector.

Sunak followed the early 2021 publication of the report on the Kalifa Review of UK FinTech with his 2021 Mansion House Speech, announcing a “sweeping set of reforms” in financial services.

Fast-forward to December 9, 2022 and the newly-in-post Chancellor, Jeremy Hunt, issues a Statement on Financial Services including reforms to the financial services sector following the UK’s withdrawal from the European Union and the plethora of changes introduced following the 2008 financial crash. These reforms come to be known as the “Edinburgh Reforms”. Aligned to the Chancellor’s announcement, the Treasury website published a list of the announced measures.

Almost a year to the day since Jeremy Hunt’s Statement, on December 8, 2023, the Treasury Sub-Committee on Financial Services Regulations of the House of Commons (the Committee) published a report on its retrospective of the progress of the Edinburgh Reforms, asking the question “Has Anything Changed?”.

The Chair of the Committee, Harriet Baldwin, quoted in a news article published on the UK Parliament Committee’s website on December 8, 2023, summarised the effect of the Edinburgh Reforms as “the lack of progress or economic impact has left them feeling like a damp squib”.

Why did the Committee take this view?

The Committee’s review focussed on 31 strands of work outlined by Hunt in December 2022 and an update on the progress of those strands of work provided by the Chancellor in a letter to the Committee dated October 6, 2023. Whilst the Chancellor’s letter described all 31 strands as either “delivered” or “in progress”, the Committee’s review found that:

• only 22 of the 31 strands were actually reforms; and
• only nine of the genuine reforms had actually been delivered, many reforms considered to have been delivered by the Government were found to be not yet complete.

It was not all bad news, however, as the Committee’s findings were that the UK Government has delivered the following since announcing the Edinburgh Reforms:

1. New remit letters have been issued to the PRA and the FCA.
2. Regulations have been made to repeal legislation on the European Long-Term Investment Fund.
3. Consulting on removing burdensome customer information requirements under the Payment Accounts Regulations 2015.
4. Introducing the Markets in Financial Instruments (Investor Reporting) (Amendment) Regulations 2022 to remove EU requirements relating to reporting rules, and the Financial Servies and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 to remove burdens for firms trading commodity derivatives as an ancillary activity.
5. Publishing a response to the consultation on expanding the Investment Manager Exemption to include cryptocurrencies (relevant HMRC regulations were then made in December 2022).
6. Laying regulations to remove well-designed performance fees from the pensions regulatory charge cap.
7. Improving tax rules for Real Estate Investment Trusts through the Finance (No.2) Act 2023.
8. Publishing and laying a final Statutory Instrument to repeal the retained EU Prospectus Regulation and to implement a new regime for public offers and admissions.
9. Launching a consultation on issuing new guidance on Local Government Pension Scheme asset pooling.

What more could, or should, the Government have done?

Among the key reforms which the Committee found to be not yet complete were:

1. Consulting on a UK retail central bank digital currency – a consultation closed on June 30, 2023, and next steps are awaited; and
2. Consulting on Consumer Credit Act reform – a consultation was launched as part of the Edinburgh Reforms followed by the publication of a Government response on July 10, 2023, indicating that a more detailed consultation would take place in 2024.

Stakeholders in the currency and consumer credit spaces will likely view the above with a certain sense of disappointment.

Central Bank Digital Currency

At the time of publication, we note that no major economy has yet launched its own digital currency. However, the Bahamas launched the Bahamian sand dollar in October 2020, Nigeria the eNaira in October 2021, and with over 100 other central bank digital currencies in research or development stages around the world, there is a risk that the UK could find itself lagging behind should progress continue to be delayed or the Government continue to refrain from publishing updates of the work being carried out in relation to the digital pound.

It is perhaps with this in mind that the Bank of England published a Consultation Response to the Bank of England HM Treasury Consultation Paper entitled The digital pound: A new form of money for households and business on January 25, 2024. It reiterated that the creation of a digital pound will be a lengthy process over a number of years and that the Government has committed to introducing primary legislation before a digital pound will be launched, the form of any such draft legislation is still yet to be seen.

Consumer Credit

Perhaps one of the stand-out items in the package of Edinburgh Reforms which has seen limited progress is the long-awaited reform of the Consumer Credit Act 1974, for which many stakeholders have been clamouring since long before the FCA took over consumer credit responsibilities almost a decade ago in 2014. This is a particularly stark anachronism in the regulatory landscape as technology and forms of credit, data analysis and communication exist today which were not even contemplated 50 years ago.

The FCA’s Regulatory Initiatives Grid (last published in November 2023) reflects the Committee’s findings, suggesting that the Treasury expected to publish a detailed consultation document on an array of policy issues this year and that this reform seeks to “modernise regulation … by moving much of the Act so that it sits under the more agile regulatory framework of the FCA” , that is, in line with the key mission of the Edinburgh Reforms to move to outcomes-based rather than rule-based regulation.

The consumer credit industry is also waiting to see whether the Government will press ahead with plans to regulate buy-now-pay-later products into FCA regulation, and the Treasury is currently reviewing feedback to the second Treasury Consultation Paper published in February 2023. Although there have been rumours that the government may delay or scrap its plans to regulate these products.

We can only speculate as to the reasons for the apparent lack of progress in certain areas; perhaps there is a multitude of political pressure tying the Government’s hands, the task in hand being too large for speedy resolution, or simply insufficient space in the legislative programme in a general election year.

What does the future look like?

Whilst all bets are usually off in a general election year, lobbyists for reform of the financial services sector, the jewel in London’s crown and a significant contributor to UK GDP, are unlikely to abandon their cause in the face of a lack (or deemed lack) of progress.

The good news is that the Government appears willing to continue to consult on what changes could or should be effected to deliver financial services reform, as evidenced by the reforms it has already achieved and initiatives such as the Future of Payments Review, led by Joe Garner, which was published on November 22, 2023.

The Edinburgh Reforms are an important step in the modernising the UK’s regulatory framework to be suitable for modern technology and business models, and – not least by moving to a full “FSMA model” of adaptive regulator-led rule-making – to ensure that the UK can capitalise on its post-Brexit legislative freedoms and ensure it remains an attractive jurisdiction for innovators in financial services to grow their businesses.

We can but hope that room in the legislative programme is found in a new Parliament following a general election this year to enable continued progress of the reforms in the interests of positive economic impact, whatever the colour of the banners of the sitting Government.