The Chancellor Rachel Reeves will warn that financial regulation has “gone too far” tonight as she pledges to rip up red tape and put the City watchdogs on a growth footing.
In her maiden Mansion House speech in the Square Mile, Reeves is expected to say that regulatory measures brought in since the financial crisis in 2008 have looked to “eliminate risk” and had “unintended consequences” in hampering growth.
“We cannot take the UK’s status as a global financial centre for granted,” she will say. “In a highly competitive world we need to earn that status and we need to work to keep it.”
Reeves has laid out a package of reforms aimed at driving competition across financial services and unlocking a wave of capital from the UK’s pension system.
Among her changes are new “growth-focused remit letters” sent to the City regulators, which will aim to embed competitiveness and growth within their decision making.
While the two main financial watchdogs, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), were given secondary objectives to consider growth and competitiveness by the previous government, they have come under fire for failing to embrace the mandate.
The FCA triggered backlash earlier this year when it announced plans to ‘name and shame’ the companies it is probing, a move that was seen as conflicting with its growth objective.
As part of Reeves’s plans, the government will consult on replacing the FCA’s certification regime, which allows staff below senior management level to work in financial services. This will be replaced with a more “proportionate” approach that cuts costs so firms can “focus on growth, the Treasury said.
A Financial Services Growth and Competitiveness Strategy will also be published in the spring, aimed at providing firms with “stability to invest”.
The Treasury said “high regulatory standards will be maintained” but parts of the system will be “rebalanced to drive economic growth and competitiveness”.
The centrepiece of Reeves’s plans for financial services is an overhaul of the pension system and consolidation of sprawling local government pension schemes into so-called “megafunds”. She claims the move could result in around £80bn to invest in businesses and infrastructure.
Lacklustre domestic investment from Britain’s retirement funds has been a bugbear of the City and the previous government. Former Conservative Chancellor, Jeremy Hunt set in motion reforms of the pension system which have been accelerated under Labour.
Since taking power, the government has conducted a pension investment review which has looked to break down blockages preventing investment in stocks and infrastructure. Reeves will set out an initial response to the plans today.
As City AM revealed earlier this week, she will also reveal plans to legislate in May next year for the so-called Pisces stock exchange system, which will allow private companies to trade their shares in a style akin to the public markets.
While the Mansion House speech is seen as a key moment for Chancellors to lay out their growth plans, speculation around Reeves’s address has been amplified by her tax raising budget at the end of October.
Business was the primary target of the government’s £40bn tax bill and bosses have accused Reeves and Keir Starmer of reversing their pro business stance in the run up to the election.
However, the Chancellor will tonight describe the financial services sector as “the crown jewel in our economy” and “a global success story: we are the second exporter of financial services in the G7”.
“While it was right that successive governments made regulatory changes after the global financial crisis to ensure that regulation kept pace with the global economy of the time, it is important that we learn the lessons of the past,” she will say.