David Postings is the man responsible for putting the country’s financial services industry on the government’s agenda. Despite well-reported headwinds, he’s optimistic for the future.
Top of the world? That was the conclusion of one report into the City of London’s global status, released last week. Others have a different take, amidst post-Brexit uncertainty and an ongoing slowdown on the public equity markets.
David Postings, the former banker turned lobbyist running trade body UK Finance, has a foot in both camps. In an interview last week with City A.M., Postings said the City was still slowly adapting to its role as a “challenger” in the financial services space. More importantly, he reckons, it’s on the government’s agenda: both parties have been talking up London’s financial district, recognising the contribution it makes to the economy.
So is the City on the cusp of another golden era?
Brexit’s financial services hit
Brexit was undoubtedly a shock for many in the City. Although it has not been the existential threat that many feared it would be, it has still had a noticeable impact.
Postings’ view though, like many in the City, is typically pragmatic. There are “challenges and opportunities,” he said diplomatically. Perhaps the biggest post-Brexit opportunity though is changing the status of financial services within the economy.
We were used to being a big financial services centre with a big home market. Now we’re a big financial centre with a very small home market
Financial services were essentially left out of the final Brexit agreement, despite its importance on both sides of the Channel. Postings noted that “there was probably more debate around fishing quotas than there was around financial services”.
This reflected the characteristically British quality of talking down our strengths but was particularly problematic given how Brexit had completely altered the landscape for financial firms.
“We were used to being a big financial services centre with a big home market. Now we’re a big financial centre with a very small home market. That whole approach of being a challenger rather than an incumbent takes a bit of getting used to,” he said.
“Thinking of ourselves in a different way post-Brexit is something that people genuinely have still got the way to go on,” he continued.
Edinburgh reforms
Slowly but surely it seems that the government has started to recognise that a change in approach was needed to reinvigorate the City. At the end of 2022, the government launched its package of financial reforms known as the Edinburgh Reforms with the hope of driving a wave of investment in the UK.
The reforms were explicitly framed in terms of Brexit with its description of “burdensome pieces of retained EU law”.
As well as relaxing rules on Solvency II and streamlining regulations, the measures include reforms to the ring-fencing regime. Regulators will also start having to consider international competitiveness as a secondary objective when making decisions.
The package was criticised recently by the Treasury Committee as a “damp squib“. While Postings admitted that individually the measures “probably don’t move the dial,” he suggested that “collectively they will have an impact”.
In particular Postings was confident that the new objective would lead to changes in regulation. “I do sense that people are taking it seriously,” he said.
“I think it should manifest itself in much better stronger business cases for regulatory change”.
Election
Going into an election year, both parties are also more pro-City than they have been for a while.
“Both parties are talking up financial services – that hasn’t always been the case,” Postings said.
“We can’t take for granted a large financial services sector contributing to the exchequer. Conversations I had recently with the opposition indicate to me that they get that at the senior level…even though it may not be a vote winner,” he continued.
But given the ways in which the banking sector was pulled into political debates last year, there are lingering concerns ahead of an election.
Postings pointed out that debates around mortgages and savings rates over the summer had already fed through into lower net interest margins for banks, which in turn impacts their competitiveness.
“These things actually all are part of a circle: that cycle of (pulling) one lever and something else somewhere else (happening) and, and the danger in a in an election year is that things happen at pace without necessarily thinking through the consequences,” he warned.
So will there be more controversy in 2024?
“Yes, I just couldn’t tell you what”.