An overhaul of the UK’s financial services regulation is set to be included in the next Queen’s Speech as the government speeds up its push to make the City more competitive post-Brexit.
Chancellor Rishi Sunak gave an update to the cabinet on Tuesday about the UK’s plans to shed EU rules for financial services, with Treasury sources telling City A.M. that the package of measures is set to be put to parliament later this year.
Many Tory Brexiteers have called for an overhaul of the City’s rulebook, now that the UK no longer needs to follow the EU’s regulatory regime, in a bid to boost global competitiveness.
This includes former Cabinet Office minister Lord David Frost.
Frost sent a “gushing note” about the work Sunak was doing on shedding regulations just before he quit the cabinet last month, according to an ally of the chancellor.
A Treasury source said Sunak’s push for a regulatory overhaul shows he is “capturing the mood and that he’s on top of these things … at a time when there needs to be potential Brexit dividends”.
The Office for Budget Responsibility in October estimated Brexit would reduce the UK’s potential Gross Domestic Product (GDP) by 4 per cent in the long term.
The financial services sector has taken a slight hit since Brexit, with a large portion of share-trading activity moving to other European capitals last year.
The long expected regulatory changes, which Sunak last year said would help herald a “Big Bang 2.0” in the City, are now in the final stages of being finalised as the Treasury wraps up its Future Regulatory Framework (FRF) Review consultation on 9 February.
The package of measures will include an easing of capital requirements for the insurance industry, which are a part of the EU’s Solvency II directive, in order to free up money for firms to invest with.
Another proposal being considered is a change to share-listing rules to make London a more attractive destination for tech start-ups to go public.
Ministers will also bring forward regulations to ensure consumers continue to have access to cash in an increasingly cash-less society, with City minister John Glen saying last year this would include “requirements that ensure people and businesses can access cash withdrawal and depositing facilities, over time, within reasonable travel distances”.
It is understood that ministers are looking at 19 potential measures in total.
Andrew Pilgrim, EY’s government and financial Services leader, said any easing of capital requirements for financial firms would be a huge win for the City.
He said: “What sort of tailoring can you do to UK capital requirements to get more investment into infrastructure, the green transition, digitisation of the economy and levelling up of the UK regions?”
“That, for me, feels like where the focus needs to be and where it currently is.”
Tulip Siddiq, Labour’s shadow economic secretary to the Treasury said: “Labour wants to see more successful firms listing here in the UK. We need to balance the need for regulation that supports financial stability as well as competitiveness.
“The Conservatives hung financial services out to dry during negotiations. Labour will make Brexit work with practical improvements to build on the deal in the national interest.”
The City lost its widespread access to EU markets at the start of last year when the UK left the bloc’s single market and customs union.
The only way this can be reversed is if the EU grants equivalence to the UK – a designation only given if Brussels thinks the other country will stay within their regulatory orbit for financial services.
It has been speculated that Sunak’s willingness to part with EU financial services regulations is another nail in the coffin to the UK’s equivalence hopes.
The Treasury declined to comment.