Mansion House speech November 2024[1]: “a package of reforms to ensure the UK’s status as a global powerhouse for financial services”[2]

The Chancellor’s Mansion House speech has just been delivered to the City of London. It was widely anticipated to reveal how the new Labour government will grow the economy, plot the next regulatory milestones, deliver major reforms to the pensions sector and redefine the roles of the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). So, what has it delivered? In summary it has delivered the following:

• the “most pro-growth financial services package since the financial crisis”;
• regulatory focus on reducing safetyism;
• regulators (FCA, PRA, FPC (Financial Policy Committee) and PSR (Payment Systems Regulator)) issued with “growth-focused remit letters” who will now be more focused on growth centred objectives;
• a “Financial Services Growth and Competitiveness Strategy" which is to be published in Spring next year and which will “deliver long-term certainty and cement the sector’s place at the heart of government’s 10-year modern Industrial Strategy”; 
• pensions reforms including the creation of “mega funds” designed to boost investment and enable ordinary people to benefit from growth; and
• the foundations for a world leading sustainable finance regime.

The importance of financial services to the UK’s economy

The Chancellor described the financial services sector as the “crown jewel in our economy” and a “global success story” which accounts for 9% of our economic output. She cautioned though that it is not something that we can take for granted and that “we need to work to keep it”. The Chancellor’s intended strategy is therefore to promote growth and competitiveness through investment and reform. 

The end of safetyism

The Chancellor observed that post-Global Financial Crisis (GFC) regulation has gone too far in seeking to eliminate risk and stated the need to address the unintended consequences of this while preserving the high regulatory standards for which the UK is respected around the world. This will require a re-balancing of the priority that has been given to risk relative to consumer protection within the current regulatory framework. 

The keys to success

The Chancellor underscored the essential components of the strategy to drive innovation, investment and growth, as being:

• unlocking private investment through pension funds to reinvigorate the capital markets; and 
• making regulation more dynamic and competitive. 

She also emphasised the importance of the UK becoming a leader in sustainable finance and the need to develop the correct approach to consumer redress.

10-year modern Industrial Growth Strategy - priority growth hot spots

The Chancellor proposed a focus on five key growth areas as a way of taking of advantage of existing strengths and maximising the UK’s potential for growth. These five areas are:

• FinTech;
• sustainable finance;
• asset management and wholesale services;
• insurance and reinsurance; and
• capital markets.

The Chancellor announced a Call for Evidence aimed at ensuring that the voices of these growth areas are heard and form the heart of designing the government’s new strategy.

Pensions

The proposed pensions reforms are a central part of the proposals. The pension investment review interim report was published alongside a research paper and two new consultations covering a range of related initiatives. You will shortly be able to read our specialist coverage of the pension aspects of the Chancellor’s Mansion House speech.

Consumer Redress

The Chancellor referred to the uncertainty caused by the current redress framework and announced that the Financial Ombudsman Service (FOS) and FCA will together develop a new agreement that will provide focus on clearer expectations for both consumers and for regulated firms. A Call for Input on this development is expected to be published today, Friday 15 November 2024.

The Certification Regime 

The Chancellor recognised the improvements that have been made in standards and accountability as a result of the Senior Managers and Certification Regime (SMCR) but noted that there had been associated costs and administrative burdens, and so with the intention of reducing some of those burdens and to free businesses up to focus on growth, she announced that the Certification Regime will be replaced with a more proportionate approach. The outcome of a joint review into this area is currently awaited from the FCA, PRA and Treasury.

Financial crime

A call to work harder and faster in the battle against fraud has been made by the Chancellor, supported by the Home Secretary and the Secretary of State for Science, Innovation and Technology, of the technology and telecommunications sectors. These sectors have been asked to update on their progress in reducing the scale of fraud by March 2025 after which an “expanded fraud strategy” is anticipated.

A new stock market

As an action to reinvigorate the UK’s capital markets, the Chancellor committed to legislation to establish PISCES by May 2025. This will enable the creation in the UK of a world-leading regulated market for the trading of private company shares in a stamp duty exempt space.

“DIGIT”

The Chancellor backed the government’s commitment to innovation with the announcement of a pilot project to deliver a “Digital Gilt Instrument” using distributed ledger technology.

Insurance captives

The Chancellor recognised the pivotal importance of the insurance markets and announced that a consultation will take place on the introduction of a new framework for UK-based captive insurance companies with a view to making the UK an attractive place to do business.

International

The Chancellor recognised that the financial sector has strong ties with international partners and committed to strengthening links with established and growing financial centres around the world. She noted the high levels of interconnectedness between the UK financial services sector and those of “economically important partners” including the US and the EU and the need to realise the growth potential arising from positive relations with these international partners.

Sustainable finance

The Chancellor announced that draft legislation will be published to enable the UK to deliver a “world leading sustainable finance framework” aimed at boosting investor confidence in sustainable companies. The proposed framework will include the regulation of ESG ratings providers and consultations on a “UK Green Taxonomy”, disclosure of information by economically significant companies via UK Sustainability Reporting Standards, and a set of integrity principles for the voluntary carbon and nature markets.

Transition Finance

The Chancellor committed to launching, in collaboration with the City of London Corporation, the Transition Finance Council.  She also announced a consultation, to take place in H1, on the UK’s plans to become a global hub for transition finance and ensuring that to achieve this ambition that the UK’s regulatory framework is “growth-focused, internationally competitive and maintains the UK’s status as a global financial hub”. The Chancellor reinstated the transition to net zero as part of the government’s strategy which falls within the remit of the Bank of England’s MPC and which the Bank should “support as part of its secondary objective”.

Mutuals and co-operatives

The Chancellor announced a package to unlock the potential of the mutual and co-operative sector as a driver of inclusive growth across the UK. This package will include a Call for Evidence on the reform of credit union common bonds, a joint report by the FCA and the PRA into the mutuals sector, and the establishment of an “industry-led Mutual and Co-Operative Business Council”.

Improved consumer decision making

The Chancellor referred to the need for “transformational changes to financial advice and guidance…to ensure the people get the right support” and announced, that as part of the Advice Guidance Boundary Review, an FCA consultation will take place into how households can be helped to make better informed financial decisions. 

The Bank of England

The Chancellor was followed by the Governor of The Bank of England who echoed the importance of promoting growth in the UK economy which, he noted, has struggled for years with the impact of the GFC, the lasting impact of the Covid-19 pandemic, and persistently low levels of public investment, causing it to languish at the bottom of the G7 league tables. The Governor reiterated the importance of the City, specifically the financial services sector, in resolving the issue of investment into the real economy and stimulating UK growth. 

Conclusion

The Chancellor, corroborated by the Governor of the Bank of England, painted an optimistic picture for the UK with a strong financial services sector at the heart of a domestic growth focused economic revival. The Chancellor’s proposals for the sector are wide reaching and span a broad range of regulatory hot topics from reform of the “duplicative” FCA Handbook, SMCR changes, sustainable finance, private capital and investment, and to improved clarity around consumer redress. There will be a number of important calls for input, consultations, and strategies etc. being published in the next few weeks and months which we will follow and consider. One of the best ways to stay ahead with important developments is sign up to our regular financial services sector updates which you can do by clicking here Financial Services Subscription.

[1] Mansion House 2024 speech - GOV.UK

[2] Chancellor fires up financial services sector to drive growth - GOV.UK