By Sinead Cruise
LONDON (Reuters) – Finance minister Rachel Reeves on Thursday promised a reboot of regulation governing Britain’s “crown jewel” financial industry which she said has shackled the City’s global prospects since the global financial crisis and stifled UK economic growth.
According to extracts from her first Mansion House address shared with media, Reeves vowed not to take the UK’s status as a global financial centre for granted, and pledged a raft of growth-focused reforms to earn and preserve this position.
Her speech comes as leaders across the industry brace for a possible bonfire of regulation on Wall Street during President-elect Donald Trump’s second term in office, with leaner taxes and lighter rules on capital likely to widen an earnings gap between U.S. banks and their global competitors.
“While it was right that successive governments made regulatory changes after the Global Financial Crisis, to ensure that regulation kept pace with the global economy of the time, it’s important we learn the lessons of the past,” she said.
“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 which we must now address.”
The former Bank of England economist will propose five priority growth opportunities to maximise potential for growth in UK financial services, namely capital markets, fintech, sustainable finance, asset management and wholesale services, and insurance and reinsurance, the excerpts showed.
She said the first Financial Services Growth and Competitiveness Strategy would be published in spring to serve as a roadmap for growth, cementing the sector’s place at the heart of the government’s 10-year Industrial Strategy.
“The UK has been regulating for risk, but not regulating for growth,” said the chancellor, who has written to policymakers reminding them of their responsibilities regarding growth as well as market stability.
Reeves and Prime Minister Keir Starmer promised voters in July’s election that they would turn Britain into the fastest Group of Seven economy after years of sluggish growth.
INNOVATION
Besides rebalancing rules to curb risk, the government is also exploring ways to help finance firms reduce costs linked to supervising junior managers, in a proposed shake-up of the so-called Certification Regime.
Further action is being taken to jumpstart Britain’s sluggish capital markets with a commitment to establish PISCES by May 2025 – the world’s first regulated market for trading private company shares in a tax-efficient manner.
This pledge to boost investment in capital-starved British firms complements plans outlined on Wednesday to build a slew of “megafunds” in what the government said was the biggest shake-up in UK pensions seen in decades.
Reeves wants to consolidate about 60 defined contribution pension schemes and 86 Local Government Pension Schemes into eight structures large enough to bankroll ambitious infrastructure projects and under-supported growth firms.
A collapse in allocations to domestic assets among Britain’s pension funds – forecast to hold 1.3 trillion pounds in assets by the end of the decade – is broadly seen as a key reason behind Britain’s lacklustre economic growth.
Mindful of its manifesto commitments to make Britain the global hub for transition finance, Reeves said the government would join forces with the City of London Corporation to launch the Transition Finance Council.
The Treasury will also publish draft legislation for tighter regulation of ESG ratings providers and a consultation on the value case for a UK Green Taxonomy to boost investor confidence in sustainable companies.
The Chancellor also committed to consult on economically significant companies disclosing information using future UK Sustainability Reporting Standards.
Tackling one of the finance sector’s greatest scourges, Reeves said she and the interior and science ministers had set tech and telecommunication firms a deadline of March 2025 to show how they are reducing fraud on their platforms.