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Rachel Reeves hints at looser regulation in bid to improve UK's competitiveness
In her first Mansion House speech as chancellor, Rachel Reeves is set to announce a series of regulatory changes aimed at reinforcing the UK’s position as a global financial powerhouse.
With an emphasis on driving growth, competitiveness, and innovation, Reeves will argue this evening that regulatory changes made in the aftermath of the financial crisis have overcorrected by seeking to eliminate risk, inadvertently stalling economic progress.
Reeves will outline a plan to address these challenges, including a major overhaul of the UK’s regulatory framework to unlock new opportunities for investment and growth. A cornerstone of this strategy is the introduction of the first-ever Financial Services Growth and Competitiveness Strategy, due to be published in the spring, alongside new "growth-focused" remit letters sent to financial services regulators.
In her speech, the chancellor will acknowledge the sector’s importance to the UK economy, stating: "I know that this sector is the crown jewel in our economy. It employs 1.2 million people, from London to Edinburgh, and from Manchester to Belfast. It is one of the country's largest and most productive sectors, accounting for 9% of our economic output." She will also highlight that the UK is the second-largest exporter of financial services in the G7.
However, she will warn: "[We] cannot take the UK’s 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.”
Regulation overhaul
Reeves will argue that that while the UK’s financial services regulatory model is respected, it has become overly focused on reducing risk, sometimes at the expense of growth. She will say that the system, established post-crisis, has "gone too far" in eliminating risk-taking, stifling innovation and competition. To address this, the chancellor will propose a more dynamic regulatory approach that fosters innovation while maintaining high standards of stability and protection.
Key reforms will include a rebalancing of regulatory objectives, with a new emphasis on supporting economic growth alongside consumer protection. This will involve greater collaboration with financial regulators such as the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) to ensure their focus aligns with the government’s growth agenda. Additionally, the Financial Ombudsman Service will be modernised to better serve consumers while providing clearer expectations for both consumers and firms.
Reeves will say: “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.”
Pension reform with megafunds
Another major goal is the reform of the UK pension system to unlock substantial investment in businesses and infrastructure. Two major consultations will be published ahead of the Pension Schemes Bill in the spring, with the goal of merging defined contribution schemes and the Local Government Pension Scheme into large-scale megafunds, similar to systems in Australia and Canada. This reform could unlock around £80bn in new investment, in what the government hopes will boost the UK’s infrastructure and clean energy sectors while benefitting pension savers.
The chancellor will also announce that the British Business Bank has secured backing from major UK pension funds, such as Aegon UK and NatWest Cushon, for a new investment vehicle aimed at supporting UK growth companies. In addition, Reeves will set out plans to mobilise private capital to drive the UK's green transition, including initiatives to raise over £70bn of private investment for clean energy and other sustainable projects.
Capital market and payments system
Reeves will also highlight plans to invigorate the UK’s capital markets, including the establishment of PISCES — a world-first regulated market for trading private company shares. The government will legislate to make share transfers in this market exempt from stamp duty taxes by May 2025.
The chancellor will also announce a pilot programme for a Digital Gilt Instrument, using distributed ledger technology (DLT) to demonstrate the UK’s commitment to innovation in financial services. To further support innovation, the government will consult on new frameworks for the UK insurance market, making it more attractive for businesses seeking efficient risk solutions.
Tackling fraud and modernising financial services
Recognising the growing threat of fraud, which cost UK consumers nearly £8.3bn last year, Reeves will announce a coordinated response involving the Home Secretary and the Secretary of State for Science, Innovation and Technology. They will write to tech and telecommunications sectors, urging them to take more decisive action to combat fraud.
The government will also take steps to drive further innovation in payments, with the publication of a National Payments Vision, and will commit to legislation aimed at improving the UK’s capital markets, including the creation of PISCES, a new market for private company shares.
Fostering sustainable finance
Reeves will also outline a series of measures to cement the UK's position as a global leader in sustainable investment. This includes drafting legislation to regulate ESG ratings providers, consulting on the UK’s Green Taxonomy, and creating integrity principles for voluntary carbon and nature markets.
Further actions will be taken to support the global transition to net zero, with Reeves reaffirming the UK’s commitment to mobilising investment for climate change. The Treasury will consult on the role of transition finance, ensuring the regulatory framework supports both sustainable growth and the UK’s goal to become the global hub for transition finance.
Reeves will conclude her speech by reinforcing the government’s long-term commitment to the financial services sector as a driver of economic growth. She will highlight the importance of international partnerships to maintain the UK’s global standing, particularly in sectors such as fintech, asset management, insurance, and capital markets.
Additionally, the government will launch a consultation to inform the Financial Services Growth and Competitiveness Strategy, ensuring that industry voices play a central role in shaping the future of the sector. The Chancellor will also call for greater support for the mutual and co-operative sector, with new measures aimed at unlocking its potential for inclusive growth across the UK.
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