UK announces major overhaul of its financial sector in a bid to boost growth

UK announces major overhaul of its financial sector in a bid to boost growth

One Canada Square in the heart of the Canary Wharf financial district between the Citibank building and the HSBC building on October 14, 2022 in London, United Kingdom.

Mike Kemp | In pictures | Getty Images

The UK government on Friday announced sweeping financial regulatory reforms that it says will overhaul EU laws that “stifle growth”.

The package of 30 measures includes a relaxation of the rule which requires banks to separate their retail operations from their investment branches. This measure – first introduced following the 2008 financial crisis – would not apply to retail-oriented banks.

The government has also confirmed that it will revise the rules on the liability of senior finance executives – another post-2008 regulation. The Senior Managers Regime, introduced in 2016, means people working in regulated companies can be sanctioned for misconduct, workplace culture or decision-making.

Changes announced in the package, dubbed the Edinburgh Reforms, also include a review of rules on short selling, how companies are listed on stock exchanges, insurers’ balance sheets and property investment trusts.

Finance Minister Jeremy Hunt said he wanted to secure the UK’s status as “one of the most open, vibrant and competitive financial services centers in the world”.

“The Edinburgh Reforms grab our Brexit freedoms to put in place an agile, local regulatory regime that works in the interests of the British people and our businesses,” he said in a statement.

“And we will go further – reforming burdensome EU laws that stifle growth in other sectors such as digital technology and life sciences.”

The government is touting the reforms as a way to capitalize on the freedoms offered by Brexit, saying hundreds of pages of EU laws governing financial services will be replaced or scrapped.

Many say Britain’s exit from the EU has hurt the country’s financial competitiveness, with Reuters reporting that London lost billions of euros in daily stocks and derivatives trading to EU stock exchanges after his departure from the block. Researchers from the London School of Economics said earlier this year that financial services would be among the sectors most affected by Brexit.

Seeking to boost the UK’s anemic economic growth has also become a priority for the government, with the country set to be on the brink of a long recession.

The previously announced removal of the UK cap on bankers’ bonuses was one of the few policies announced by Hunt’s predecessor, Kwasi Kwarteng, that stuck after his chaotic “mini budget”.

Kwarteng had promised a ‘Big Bang 2’, referring to the deregulation of the London Stock Exchange in the 1980s, which drew a host of global banks and investment firms to the UK and rapidly grew in size of the City of London’s financial sector.

Another proposed reform would see the remit of regulators broadened to include facilitation the competitiveness of the UK economy, in particular the financial services sector.

However, John Vickers, former chairman of the Independent Banking Commission, warned in a letter to the Financial Times this week that “the special favor of the financial services industry…could be detrimental to it, as we have all seen there at 15 .”

Tulip Siddiq, ghost town minister for the opposition Labor Party, called the proposed reforms a “race to the bottom”.

‘Introducing more risk and potentially more financial instability because you can’t control your backbenchers, it’s this Tory government everywhere,’ she said, referring to the ongoing infighting within the ruling Conservative Party.

“Reforms such as Ring Fencing and the Senior Executives Scheme were introduced for a good reason. The City does not want low consolation prizes for being sold out in the Tories’ Brexit deal, nor more empty promises on deregulation.”

Kay Swinburne, vice president of KPMG UK’s financial services practice, told CNBC in emailed comments that the reforms were “a step closer to more effective regulation rather than a race to the bottom.”

“Although the majority of these reforms have been delayed before, they represent a step towards ensuring the long-term competitiveness and growth of the UK financial services sector whilst seeking to maintain standards.”

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