Chancellor Jeremy Hunt has unveiled plans to “turbocharge growth” with the biggest shake-up in banking reforms for three decades.
His so-called Edinburgh reforms announced this morning seek to “seize the benefits of Brexit” by cutting EU red tape for the financial sector.
The new measures build on the government’s Mansion House 2021 package, with a view to reforming the industry after leaving the EU.
Among key measures announced are plans to drop Solvency II capital requirements on insurance firms and ease current bank ring-fencing laws.
More than 30 regulatory reforms to “unlock investment and turbocharge growth” were laid out, as well as the government’s plans to repeal “burdensome pieces of retained EU law.”.
In his Edinburgh address he outlined plans to repeal and replace hundreds of laws from the European Union in the wake of Brexit.
He said the UK would implement a ‘smarter regulatory framework’, and a commitment to new laws for replacing EU-era Solvency II, which governs insurers balance sheets.
The Government said this would potentially unlock £100bn of private investment in UK infrastructure.
Saying financial services contributes £216bn a year to the UK economy, Hunt unveiled a bid to overhaul regulations in industries such as digital technology and life sciences, as announced in the autumn statement last month.
The so-called Big Bang 2.0 proposals – a phrase first canned by Rishi Sunak nearly two years ago – have long been touted by Leavers as one of the biggest potential benefits of Brexit.
Among other reforms announced are a review of the EU’s wide-ranging MiFID II regulatory regime, and plans to reshape the UK banking regime in a bid to unshackle the sector.
This comes after the government tightened rules to prevent mistakes that led to the financial crisis from happening again in the future.
Lenders will be able to link their investment and retail banking arms, Hunt will say, though it is unclear whether big players such as Barclays and HSBC will still need to partially separate, or “ring fence”, the two.
Hunt also announced the ring-fencing regime will be reformed in response to the recommendations of the Skeoch Review.
This includes freeing retail focussed banks from the regime and easing unnecessary regulatory burdens on firms while maintaining protections for depositors.
The Chancellor also put forward also issued a reft of new remit letters to the Financial Conduct Authority and Prudential Regulation Authority.
These changes mean regulators will have a duty to facilitate the international competitiveness of the UK economy and its growth in the medium to long term, post-Brexit.
“We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world” said Chancellor of the Exchequer, Jeremy Hunt.
“The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses.”Jeremy Hunt this morning
He added, the government is intent on “delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences.”
Calling the UK “a financial services superpower”, economic secretary to the Treasury, Andrew Griffith, said the government has “long benefited from, and are committed to, high quality regulatory standards.
“Scotland’s role in maintaining our status as the global benchmark for regulation is crucial – with Edinburgh and Glasgow the two largest UK hubs outside of London.
“Our reforms deliver smarter regulation of financial services that will unlock growth and opportunity in towns and cities across the UK.”
The Edinburgh Reforms were criticised by Labour however, which has been engaging in a charm offensive with big business and the City in recent weeks.
Tulip Siddiq, Labour’s shadow city minister claimed the reforms mean “introducing more risk and potentially more financial instability” after the Conservatives “crashed our economy” with the mini-budget.
“Reforms such as Ring Fencing and the Senior Managers Regime were introduced for good reason. The City doesn’t want weak consolation prizes for being sold down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.
“Its competitiveness depends on high standards, not a race to the bottom.”
She also claimed that “watering down of the UK’s commitments on green finance” was “hidden” in the announcement.
“More confusion and change in the UK’s net zero plans for the City is the opposite of what businesses are asking for, and risks undermining the City’s confidence to invest in the jobs and industries of the future.”