GovWire

The Chancellor will announce a package of reforms to drive growth and competitiveness in financial services, as she argues that regulatory changes to eliminate risk after the financial crisis have gone too far and led to unintended consequences.

In her first Mansion House speech as Chancellor, Rachel Reeves will say that the UKs status as a global financial centre cannot be taken for granted.

She will argue that, while the UK will always uphold high standards, a system has been created which seeks to eliminate risk taking and holds back economic growth.The UK has been regulating for risk, but not regulating for growth, she will say.

The Chancellor will outline a plan to rebalance the system, setting the financial services sector up to innovate, grow and seize the opportunities for investment in businesses, infrastructure and clean energy across Britain.

This will include setting new growth-focused remits for financial service regulators, the publication next year of the first ever Financial Services Growth and Competitiveness Strategy and creating pension mega funds to boost investment so that ordinary people benefit from growth.

Speaking in the City of London, the Chancellor of the Exchequer Rachel Reeves will say:

Before we came into government, I was clear that the financial services sector must play a central part in our economic vision and our plan for economic growth.

Because I know that this sector is the crown jewel in our economy. It employs 1.2m people, from London to Edinburgh, and from Manchester to Belfast. It is one of the countrys largest and most productive sectors, accounting for 9% of our economic output.

And it is a global success story: we are the second largest exporter of financial services in the G7.

But we cannot take the UKs status as a global financial centre for granted. In a highly competitive world we need to earn that status and we need to work to keep it.

She will add:

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 is important that we 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 which we must now address.

She will conclude by saying:

The changes I have set out today will drive growth and competitiveness through investment and through reform.

A long-term strategy to harness the strengths of the financial services sector: making the UK a global leader in sustainable finance, developing the right approach to redress to reduce uncertainty, reinvigorating our capital markets by unlocking private investment through our pension funds, and reforming our approach to regulation to make it more dynamic and more competitive.

Taken together, these measures represent the most pro-growth financial services package since the financial crisis.

Reform to unlock innovation and growth

While the UKs regulatory model for financial services is respected around the world, reform is needed to unlock innovation, drive more investment and deliver sustainable economic growth.

High regulatory standards will be maintained but parts of the regulatory system will be rebalanced to drive economic growth and competitiveness. The Chancellor has written to the Financial Conduct Authority, Prudential Regulation Committee, Financial Policy Committee and Payment Systems Regulator to ensure a greater focus on supporting economic growth.

The Financial Ombudsman Service framework will also be modernised so that it continues to play a vital role for consumers to get redress while giving clearer expectations around its decisions for consumers and for financial services firms.

The government will also consult on replacing the current Certification Regime, which applies to staff below senior management level, with a more proportionate approach that reduces costs so that businesses are freed up to focus on growth.

To combat the scourge of fraud that cost UK consumers almost 8.3 billion last year alone and steals money away from investment and lending by the financial services sector, a coordinated effort across sectors, law enforcement and government is needed. The Chancellor, Home Secretary and Secretary of State for Science, Innovation and Technology have therefore written to the tech and telecommunication sectors calling for them to go further and faster in reducing the scale of fraud taking place on their platforms and networks with an update on progress requested by March 2025 ahead of an expanded fraud strategy.

Further action is being taken to drive innovation in payments with the publication of a National Payments Vision, and reinvigorate the UKs capital markets by committing to legislate to establish PISCES by May 2025 - a world-first regulated market for trading private company shares where transfers will be exempted from stamp duty taxes on shares.

The government is launching a pilot to deliver a Digital Gilt Instrument, using distributed ledger technology (DLT), demonstrating the governments commitment to innovation in the financial services sector.

The government is also consulting on introducing a new framework for UK-based captive insurance companies to make the UK insurance market a more attractive hub for businesses seeking efficient risk solutions.

Stability confidence to invest

Building on the Budget - which fixed the foundations of the economy by repairing the public finances and bolstered economic and fiscal stability the Chancellor will set out a clear path for growth in the financial services sector.

The government will publish the first ever Financial Services Growth and Competitiveness Strategy in the Spring to deliver long-term certainty and cement the sectors place at the heart of the governments 10-year modern Industrial Strategy.

The government will propose focusing on five priority growth opportunities in financial services to take advantage of the UKs existing strengths and maximise the potential for growth.

These will be FinTech, sustainable finance, asset management and wholesale services, insurance and reinsurance, and capital markets. A Call for Evidence will be published alongside the announcement to ensure that industry voices are at the heart of designing the new Strategy.

The Strategy will reflect the fact that the success of the financial services sector is built on strong ties with international partners. This means strengthening partnerships with established and fast-growing financial centres will be a cornerstone of the governments approach to financial services: critical to attracting foreign investment and delivering economic benefits for the UK.

Investment through financial services

To deliver more investment in businesses, infrastructure and clean energy, the Chancellor will also announce bold reforms to the pension system and lay the foundations for a world-leading sustainable finance regulatory regime.

Two consultations will be published ahead of the Pension Schemes Bill in the Spring to merge defined contribution pension schemes and the Local Government Pension Scheme in England and Wales into megafunds mirroring the pensions landscape in Australia and Canada. This, along with reforms to ensure better value from these pension schemes, could unlock around 80 billion new investment in businesses and infrastructure, while boosting savers pension pots.

The Chancellor will announce that the British Growth Partnership has secured the support of two UK pension funds for its future launch. Aegon UK as a substantial cornerstone investor and NatWest Cushon, who have combined assets worth over 219 billion, have both agreed to work with the British Business Bank with a view to investing in the UK growth companies of the future, subject to commercial and regulatory steps and, where appropriate, agreement from the Trustees. She is also expected to announce that, alongside Phoenix Group, the British Business Bank has completed its LIFTS investment in Schroders Capital, to create a new 500 million investment vehicle to invest in UK science and technology. The government expects 20% of the LIFTS capital to be invested into life sciences.

The Chancellor will also set out plans to mobilise trillions of pounds of private capital to support clean energy and growth as part of the UKs efforts to reclaims its position as a global leader in climate change. This follows action at the International Investment Summit and Budget to unlock investment, including 27.8 billion of capitalisation for the National Wealth Fund, which is expected to mobilise over 70 billion of private investment.

To deliver a world-leading sus

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