GovWire

Introduction

Good morning, everyone. And thank you, of course, to Miles and TheCityUK for the opportunity to be here.

You dont need me to remind you of the uniquely constructive role TheCityUK plays on behalf of this great industry.

I want to thank you, among many other things, for your forward-looking research.

And I note, for instance, your recent Six-point Plan for Growth for the Sector, and your statistics on financial services across the UK which are invaluable for our understanding of the breadth and depth of this industry.

Thats particularly relevant because of where we are today.

Not too long ago we could have closed our eyes, taken a deep breath, and known for certain that we were in Auld Reekie.

The geographical giveaway these days is the sound of clicking of computer mice echoing from the offices of RBS, Standard Life, Baillie Gifford, Abrdn and Scottish Widows. And Blackrock, JP Morgan Chase, HSBC and more.

Because this city, as we all know, is a financial services powerhouse.

The second largest financial services cluster in the UK after London. More than 50,000 people one seventh of the entire workforce employed in banking, insurance and pensions, asset management and FinTech. And an increasingly important centre of excellence for sustainable finance and investment.

And to avoid accusations of favouritism, let me also praise Glasgow where recent growth in the sector has attracted global attention, and made it the third largest financial centre in the UK behind London and Edinburgh. While green finance credentials, the fintech cluster and a developed talent pool extend beyond Edinburgh and Glasgow to Perth, Stirling, Dundee and Aberdeen too.

Of course, this is nothing new. Scots and Scotland have been pioneering financial services for centuries.

Adam Smith gave us the intellectual framework. Nicknamed both the Father of Economics and the Father of Capitalism, Smith is said to have expressed disappointment that he didnt achieve more in life. Which seems a little bit harsh.

John Law an inveterate gambler and duellist dreamt up paper money claiming and I quote that I have discovered the secret of the philosophers stone: it is to make gold out of paper.

Robert Wallace and Alexander Walker presbyterian clergymen both, and founders, of course, of what became Scottish Widows created the first insurance fund, based on actuarial and financial principles rather than mercantile gambling.

Robert Fleming, of the eponymous bank, left school at 13 not that Im advocating that and went on to become one of the worlds leading investors and pioneer of investment trusts.

You get the point. For whatever reason and I suspect there are many Scotland has been at the leading edge of this intellectually and practically for a long time.

Financial services and the Union

The larger point here is that its no coincidence that Scotland and the UKs financial services industry have evolved and thrived together over the last two centuries.

Thats just one of the countless reasons why Im a Unionist and why this Government is utterly committed to bolstering the Union.

And, by the way, the Autumn Statement of a fortnight ago made good on that commitment by boosting UK-wide devolved administration funding by 3.4 billion over 2023-4 and 2024-5.

But I dont want this to be a political speech. I want it to be a celebration of this extraordinary industry, and clear statement of intent regarding the future.

If you cant tell, I am determined to do everything I can to help this industry succeed. And I share that determination with the occupants of both Number Ten and Number Eleven Downing Street.

And given the contribution you already make to the UK, why wouldnt we feel that way?

One pound of every ten of the UKs economic output a higher proportion than in France, Germany or the US. Hundreds of thousands of jobs. Billions in taxes supporting our vital public services.

And while I may be the City Minister, that doesnt just mean the City of London. Yes, its Edinburgh and Glasgow and Aberdeen. But its Manchester, Cardiff, Belfast, Newcastle and Birmingham too. Because two-thirds of financial services jobs are outside London, serving vast numbers of people whove never even set foot in the Square Mile.

The governments ambition

As an industry, you are at the forefront of our minds.

When we ask ourselves what, in a globally competitive marketplace, we want to be good at, you are a huge part of the answer.

The big picture ambition is straightforward: financial stability, fiscal sustainability and growth.

In the Autumn Statement, the Chancellor outlined five areas for growth: digital technology, life sciences, green industries, advanced manufacturing and financial services. And, when you think about it, even the first four of those rely on financial services for their day-to-day operations as well as investment capital.

On the bank surcharge, the Autumn Statement confirmed the position we announced last year, underlining the governments commitment to maintaining competitiveness and encouraging growth within the banking market.

We also published a consultation response setting out the final policy approach on Solvency II. This will deliver a more tailored, clearer and simpler regulatory regime, better suited to the unique features of the UK market.

The reforms were making are as follows: cutting the risk margin significantly, with a 65% cut for long-term life insurers; maintaining the existing fundamental spread; increasing investment flexibility by overhauling matching adjustment eligibility rules; and slashing red tape.

The ABI have said the reforms we have made could unlock over 100 billion from UK insurers for productive investment.

On that note, weve also listened to industrys proposals, and created the Long-Term Asset Fund to help unlock access to long-term illiquid assets.

We believe thatll mean a significant boost to the productive capacity of the UK economy including much-needed infrastructure and decarbonisation products.

Long-term investments in illiquid assets can be an incredibly important part of a portfolio. A regulatory environment that is too focused on short-term, liquid assets or low costs at the expense of quality is a problem.

Another positive with that, of course, is helping pension savers to diversify their investments, and access higher long-term returns.

I should also say that the work on LTAFs is best understood in the context of wider work on the UK funds regime review, which seeks to make the UK a more attractive location for funds domicile.

Ive been really keen for some time to see the launch of the first LTAFs. And am delighted to reveal today that the first firm has submitted an LTAF application to the Financial Conduct Authority.

My personal view is that good decision-making is sometimes about appropriate risk-taking. In government we should take calculated risks to get the very best outcomes for the people of this country. And I celebrate those who do the same in business.

Refining ESG

Another thing Id flag is the fact that were introducing new sustainability disclosure requirements which take a climate-first approach to sustainability reporting, in turn helping people to make informed investment decisions. We will do this in a proportionate and UK-tailored manner while in step with international standards.

The FSM Bill

Part of the context for all our efforts to boost the sector is, of course, our departure from the European Union.

And were seizing related opportunities there too.

Thats the point of the Financial Services and Markets Bill which is making its way through Parliament more-or-less as I speak.

The headline goals are tailoring financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre, while delivering better outcomes for consumers and businesses.

Youll be pleased to know that Im not going to take you through every sub-clause of the Bill thats available on Parliament TV if youre interested but let me at least sketch out the most salient points.

First, the implementation of the Future Regulatory Framework Review - with new objectives for the regulators to facilitate growth and competitiveness, and the repeal of retained EU law to enable reforms to key areas of financial services regulation, including Solvency II and MiFID. The result will be a comprehensive, domestic model of regulation.

Second, harnessing new technologies safely and responsibly. With an FMI Sandbox to facilitate experimentation and the development of best practice.

Third, were implementing the outcomes of the Wholesale Markets Review removing unnecessary restrictions on where and how trading can happen whilst maintaining high standards of regulation.

I also want to take this opportunity to reiterate the governments commitment to taking forward the recommendations from Mark Austins Secondary Capital Raising Review.

The Treasury is working with 