Government denies ‘race to bottom’ on regulation as Hunt loosens City rules – business live | Business

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Chancellor Jeremy Hunt has said the reforms outlined today will help secure the UK’s status as an open, dynamic and competitive financial services centre:

“We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world.

The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and homegrown regulatory regime that works in the interest of British people and our businesses.”

Here’s the full story:

The government has confirmed it plans to change the law to require the Bank of England’s Prudential Regulation Authority (PRA) to focus more on the financial sector’s global competitiveness, as part of today’s wider-ranging reforms.

Jeremy Hunt has also written to Nikhil Rathi, CEO of the Financial Conduct Authority, (the City regulator) outlining how the FCA’s remit will be widened to cover “the international competitiveness of the UK economy – including in particular the financial services sector – and its growth in the medium to long term”.

The existing Financial Services and Markets Act 2000 will be amended to give the FCA a secondary remit to “facilitate, subject to aligning with relevant international standards, the international competitiveness of the UK economy (including in particular the financial services sector)“.

The idea is to tailor financial services regulation to “bolster the competitiveness of the UK as a global financial centre and deliver better outcomes for consumers and businesses”.

Here’s ITV’s Joel Hills on the government’s financial reforms:

Brexit has proved to be an act of economic self-harm and the government’s desperately needs something positive to point at.

The “Edinburgh reforms” are an attempt to take advantage of the genuine regulatory freedom that leaving the EU won and revive growth.

Happy to be proved…

— Joel Hills (@ITVJoel) December 9, 2022

…wrong but I’m not sure that the government is doing anything really fundamental.

The detail needs scrutiny but the press release reads like a bigging-up of not very much.

The plan is to “seize the benefits of Brexit” by ditching “burdensome” EU laws. It’s worth remembering…

— Joel Hills (@ITVJoel) December 9, 2022

…that the ringfencing rules which the government is changing were an entirely British invention, designed to ensure the UK taxpayer never again had to bail out the banking system as it did in 2008.

At the time, the EU wasn’t keen on the idea.

— Joel Hills (@ITVJoel) December 9, 2022

UK announces Financial Services Reforms

The Treasury has announced its reforms to the financial services industry, which it says will taking forward its ambition for the UK to be “the world’s most innovative and competitive global financial centre.”

As expected, it includes reforming the ‘ring fencing’ regime. Those rules were introduced after the 2008 crisis, and force lenders to keep their investment banking arms seperate from their consumer banking division, to protect ordinary customers in the event of another financial crash.

It also includes a review into reforming the Senior Managers & Certification Regime, which held top bankers more responsible for conduct at their banks (again, intended to avoid the mistakes that led to the financial crisis).

Here’s the full list of The Edinburgh Reforms, as we are to known them:

  • Reforming the Ring-Fencing Regime for Banks

  • Issuing new remit letters for the PRA and FCA with clear, targeted recommendations on growth and international competitiveness

  • Publishing the plan for repealing and reforming EU law using powers within the FSM Bill, building a smarter regulatory framework for the UK

  • Overhauling the UK’s regulation of prospectuses

  • Reforming the Securitisation Regulation

  • Repealing the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, and consulting on a new direction for retail disclosure

  • Intending to repeal EU legislation on the European Long-Term Investment Fund (ELTIF), reflecting that the new UK Long-Term Asset Fund (LTAF) provides a better fund structure for the UK market

  • Launching a Call for Evidence on reforming the Short Selling Regulation

  • Publishing a draft Statutory Instrument to demonstrate how the new powers being taken forward in the FSM Bill will be used to ensure that the FCA has sufficient rulemaking powers over its retained EU payments legislation

  • Consulting on removing burdensome customer information requirements set out in the Payment Accounts Regulations 2015

  • Welcoming the PRA consultation on removing rules for the capital deduction of certain non-performing exposures held by banks

  • Bringing forward secondary legislation to implement Wholesale Markets Review reforms

  • Establishing an Accelerated Settlement Taskforce

  • Committing to establish the independent Investment Research Review

  • Commencing a review into reforming the Senior Managers & Certification Regime in Q1 2023

  • Committing to having a regime for a UK consolidated tape in place by 2024

  • Consulting on issuing new guidance on Local Government Pension Scheme asset pooling

  • Increasing the pace of consolidation in Defined Contribution pension schemes

  • From April 2023, improving the tax rules for Real Estate Investment Trusts

  • Announcing changes to the Building Societies Act 1986

  • Delivering the outcomes of the Secondary Capital Raising Review

  • Consulting on reform to the VAT treatment of fund management

Analyst: risk that Treasury is acting myopically

There is a risk that today’s proposals forget the surge in risk-taking that led to the 2008 crisis, warns Victoria Scholar, head of investment at interactive investor:

UK Chancellor Jeremy Hunt is a major sweep of reforms to the financial sector being described as the second ‘Big Bang’. The UK Treasury said it plans to reform short selling, consult on removing the rules for capital deduction at banks and reform securitisation. There is expected to be a sweep of more than 30 regulatory reforms as the UK desperately tries to maintain its position as a key global financial hub post Brexit.

Hunt is trying to prove to the financial sector that he is very much pro-business and in favour of the City of London as a key growth engine to the economy. However there is a risk that the Treasury is acting myopically, quickly forgetting the pre-2008 excessive risk taking that ultimately led to the global financial crisis and the introduction of new regulation to prevent another similar catastrophe.”

Introduction: City minister denies post-Brexit shake-up is ‘race to bottom’

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Neary 15 years after the financial crisis, the UK government is to set out a package of post-Brexit reforms to boost its financial services industry today, which chancellor Jeremy Hunt claims will spur competition and growth.

Dubbed the “Edinburgh reforms”, the plans will outline how the government intends to “review, repeal and replace” rules introduced to avoid a repeat of the 2008 crash, to protect savers and the taxpayer.

Today, though, ministers argue these protections risk holding back London’s banks and insurers as they compete against overseas rivals.

Changes are expected to include relaxing ring-fencing capital rules to lighten the burden on smaller, retail-focused banks, and reviewing the senior managers regime, which held top bankers more accountable for their conduct and competence, and for transgressions on their watch.

Hunt is also expected to confirm City regulators will be given a new “secondary objective” of delivering growth and competitiveness, to run alongside their primary duty of protecting consumers and maintaining financial stability.

That “competitiveness and growth” objective is controversial – it risks undermining the reputation of Britain’s regulators, if they aren’t seen as focused on keeping the country’s financial institutions and markets safe and sound, and running well.

But City minister Andrew Griffith has denied that the govermment is embarking in a ‘race to the bottom’ by changing City reforms.

Griffith has told the Financial Times it is “absolutely the right time” to revisit the rules brought in after the 2008 crisis.

“Regulations were right for the time,” Griffith said, adding;

“The banking system, I’m assured, is in a much better position in terms of its balance sheet and its understanding of the liabilities that it is managing.”

Here’s our preview piece on Hunt’s reforms, in which my colleague Kalyeena Makortoff explains that Hunt is trying to rebrand what his predecessor Kwasi Kwarteng claimed would be a post-Brexit “Big Bang 2.0” for the City.

That was a reference to the sweeping deregulations of the 1980s under Margaret Thatcher’s administration, which were credited with elevating London as an international financial centre.

The agenda

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