The government has proposed a series of 30 regulatory changes for the financial services industry.
Several EU regulations are being examined, overturned, and changed. The package is the largest revision of banking regulations in 30 years, according to Jeremy Hunt, who says the changes would “turbocharge growth” for the nation.
The reforms expand upon the agenda for an overhaul that the government is pursuing with the Financial Services and Markets (FSM) Bill.
“Ring-fencing,” the law requiring major banks to keep investment and retail banking separate, is one of the regulations that is receiving attention. The Bank of England states that the goal of this rule, which was implemented in 2019, was to “improve the stability of the UK financial system and prevent the costs of failing banks landing on taxpayers.”
A value for money framework that will aid in DC scheme consolidation will be the subject of a consultation. The DC charge cap will be removed by regulations that will be announced early in the new year, allowing scheme members to invest in a wider variety of assets.
Hargreaves Lansdown head of government affairs and public policy Anne Fairweather says: “The Government has used today’s package of measures to underline this week’s commitment to reviewing the advice/guidance boundary. The review will be a game changer to allow firms to do all that they can to help people manage their finances better and rebuild their financial resilience over the longer term.
“The proposed review of PRIIPs and retail disclosures is also welcomed. The Treasury is looking to take a more proportional approach which should be linked to the FCA’s new consumer duty. The future regime should challenge firms to improve clients’ decision-making and drive better outcomes rather than swamping them with paper.
“Retail investors are significant shareholders in UK listed companies yet consistently get frozen out when companies raise more capital or when new companies list. Changes to the prospectus regime should focus on levelling the playing field for retail investors and remove unnecessary hurdles from their participation in these investment opportunities.
“Today’s announcement that LTAFs are in the process of being authorised is good news will allow for investment opportunities like private markets and infrastructure that have previously been hard to reach for modern workplace pensions and retail investors. The final FCA rules are due shortly which will set out how ordinary retail investors might be able to invest, but there remains need for reform to allow LTAFs to be held in Isa and SIPPs.”
Hargreaves Lansdown equity analyst Sophie Lund-Yates says: “London’s financial reputation has been severely held back since Brexit, right at a time when the ‘powers that be’ have tried to encourage investment and growth in a big way. Sadly, the allure simply isn’t there, with many of the UK’s brightest companies being snapped up by overseas investors, and London losing its top share-dealing status. Hunt is widely expected to scorch red tape and update or replace a number of EU regulations. It’s clear the government is going for growth, but the extent of today’s package will need to be vast, if it’s to have any meaningful impact for brand UK at a time when the country struggles with a slowing economy and cost-of-living crisis.
“Some of the regulatory changes could include relaxing the rule that demands major banks to keep investment and retail banking separate. Forcing smaller, retail-focused outfits to legally separate their riskier investment banking businesses from their retail divisions is an onerous task that caps outputs. Ring-fencing has can make it More difficult for smaller banks to grow. A glass ceiling to growth is created by the fact small, domestic banks need to compete for a small pool of permitted assets, alongside the capital from much larger competitors. Ultimately this becomes a profit problem.
“Taking this rule off the cards for retail-focussed lenders is, on paper, a quick way to increase everyday lending and would help ensure more money’s pumping round the economy, which could see some metres shaved off the depths of the UK’s recession. Not needing quite so many eagle-eyes on adhering to this regulation could also be a cost and risk benefit for a number of banks. There is of course an argument to say it’s crucial the government strikes the right balance between stoking the engines of growth in what has become a tepid environment, and not slashing standards too far in the name of that aim. The market’s likely to have a sharp reaction to today’s reform if any deeper-than-expected shake ups are in Hunt’s package.”
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “The UK’s defined contribution market has consolidated hugely in the last decade but remains fragmented with many small schemes offering varying levels of fees, governance and service. Increased consolidation brings scale and scale can bring huge opportunities in terms of the costs, performance and support schemes can offer to members. These reforms can accelerate this trend and potentially boost member outcomes by putting in place a framework on the standards of service members can expect from their scheme across the market.
“Increased scale can also open the doors to increased investment opportunities with larger schemes able to negotiate better fees and invest in a wider range of assets such as infrastructure. This shift can be fuelled by the government’s plans to introduce regulations early in the new year to enable well designed performance fees to be removed from the DC charge cap. However, it is important that client outcomes remain the focal point, so while costs and investment performance are important, so too are the decisions people make along the way. This should factor into the value for money assessments but risks being cast aside because it’s ‘too hard to measure’.
Adaptive Financial Consulting CEO Matt Barrett says: “The UK Government’s announcement of a loosening of financial services regulation to increase competition is welcome in principle. However, in practice, it will need to be executed carefully to ensure financial institutions that have spent many years and a significant amount of investment preparing for the implementation of EU-wide regulations are not caught off-side.
“As important as liberalising financial rules, maintaining high standards and making London an attractive city to do business, is playing to the UK’s strengths – particularly in its standing as a technology hub for some of the world’s most sophisticated institutions. Regulatory reform needs to have an eye to the future, with a clear vision of how London can differentiate in the long term and reimagine its role in the global financial ecosystem beyond tradition financial services.
“The Government’s homegrown rulebook contains some interesting proposals, but we would like to see more done to invigorate institutional financial technology services that are the lifeblood of the modern sector. To do this, we need to see greater incentives for firms to do business in the UK and more done to encourage and develop the best talent to work in the sector.
“A second key impact will be in how global financial services firms adjust their infrastructure to accommodate shifting regulations. Accommodating new rules clearly does not happen overnight – it requires planning and often material changes to institutions’ operations. In today’s fast-changing market environment, firms that own their technology stack can update their platforms with new regulatory and market requirements quickly as they are not tied into a vendor’s timetable decision to implement these changes. Those reliant on vendor technology may struggle to adapt quickly as they are beholden to their rate of adaptation to far-reaching regulatory change.”
PIMFA head of public affairs Simon Harrington says: “We welcome the Government’s move to revoke the PRIIPs regulation and look forward to engaging positively with the Treasury on an alternative framework for retail disclosures.
“It is imperative that any disclosure framework is, in future, able to ensure that the end customer is provided with the right information, and in the right way, in order to better understand the, at times, complex decisions they are making.
“The framework, as it currently exists, does not do this and in places, seems directly in conflict with the Financial Conduct Authority’s (FCA) broader aims of delivering higher standards of communication under the Consumer Duty. This is a welcome move both for retail consumers and the providers of services to them.”