Introduction
The Chancellor of the Exchequer and the Governor of the Bank of England delivered speeches to a senior industry audience at The Mansion House yesterday evening alongside the Lord Mayor of the City of London. These speeches were largely focused on investment and growth. The Chancellor’s speech evidenced a full policy agenda alongside close, listening, engagement with the sector and directly addressed key themes we have been raising with the government since they took office, and previously in opposition. She used some of our language and data to recognise our industry’s crucial role in the economy, and to confirm her intentions to work in partnership with our industry to drive investment, growth, innovation and the transition to net zero.
Numerous reports and consultations have been published to coincide with the Chancellor’s speech, which we will respond to in collaboration with members.
Announcements and commitments
Financial Services Growth and Competitiveness Strategy (FSGCS)
In the spring, the government will publish their ‘Financial Services Growth and Competitiveness Strategy’. The Chancellor described five priority growth areas the strategy will address:
- FinTech
- sustainable finance
- asset management and wholesale services
- insurance and reinsurance
- capital markets.
HMT has published a call for evidence to inform this strategy, with a 12 December deadline. We are already working on this with members, as part of our wider work to inform and influence the government’s Industrial Strategy and will respond to the call for evidence.
International Trade
The speeches highlighted the importance of free and open international trade to the UK economy, the ability to attract international investment, and the need to deepen engagement with fast-growing economies such as India, China and the Gulf states.
We welcome the Chancellor’s desire to deepen the UK-US economic relationship on areas such as emerging technologies, and her recognition of the commercial opportunities for our industry in engaging with significant and fast-growing economies.
Strengthening the UK-EU business relationship remains a top priority for our members, so we noted positively both the Governor and the Chancellor identifying the importance of the UK rebuilding relations with the EU. They also raised the interconnectedness of our markets, the broader importance of openness and the need for an approach on financial services that supports growth and delivers investment. It is clear that if the UK and the EU are to be successful in working together to address the biggest shared and strategic challenges of the coming decades – demographic shifts, the energy transition, enabling Europe’s innovative companies to scale up, ongoing conflicts and the increasing geopolitical competition and regionalisation of global trade – policymakers must focus on the role of the financial and related professional services industry as a key enabler, essential for driving economic growth and funding these transformative challenges.
The speeches underlined the need for government to consider the significance of our industry's ability to operate within the EU to promote growth and address common European challenges as it pursues its "reset" agenda with the EU.
Regulation
The Chancellor recognised that “the UK has been regulating for risk, but not regulating for growth”, creating a system that seeks to eliminate risk taking. A theme also echoed by the Lord Mayor. We have been working persistently to make clear to politicians, officials and regulators that this is a crucial issue for the UK that urgently needs to be addressed. It’s therefore very positive to hear the Chancellor clearly acknowledge this and set out her intention to address it. We will continue to press for action to turn the narrative into effective actions with positive impacts across the policy and regulatory landscape.
The Chancellor has published new remit letters to the regulators underlining their and the industry’s important role in delivering growth. The letter to the FCA, for example, calls for regulation that promotes stability and investor confidence, and allows firms to compete, innovate and grow. It calls for the secondary international competitiveness and growth objective to be fully and rapidly embedded throughout the organisation, including in supervision and firms’ experience of interacting with the FCA. It says the FCA should consider how it can enable informed and responsible risk taking.
The Chancellor acknowledged that the Senior Managers and Certification Regime (SMCR) has helped improve standards but has become overly costly and administratively burdensome. HMT and regulators will shortly publish the outcomes of their 2023 review and consult on removing the current certification regime from legislation.
We contributed extensively to the SMCR review and broadly supported the positive impacts of the regime. But we called for streamlining and simplification to address aspects that go too far and undermine UK competitiveness, as well as the need to speed up approvals for individuals already approved for similar roles or under similar regimes.
The FCA will shortly consult on transformational changes to financial advice and guidance.
We support policy and regulation that meaningfully improves consumer access and confidence to invest. Changes to the advice and guidance regime are important but will take years to impact and are just part of the change needed. We will continue to press for a holistic and long-term approach to building a much stronger individual investment culture.
The Chancellor acknowledged that the UK’s approach to redress can cause uncertainty and be a drag on investment, and that reform is needed to create a surer climate for investment. HMT has worked with the FCA and the Financial Ombudsman Service (FOS) to develop a new agreement between the two institutions, with clearer expectations on how they cooperate, including on historic market practice and mass redress events. The FCA and FOS have published a joint call for input, to seek views on how to modernise the redress system.
While progress in all of these areas is welcome, we will continue to advocate for a holistic, systematic, approach to regulation and supervision that meaningfully boosts UK growth and long-term competitiveness. For example, the speeches did not mention supervision, which is not subject to the secondary objective, but is a significant factor impacting UK competitiveness.
Post-crisis pay structures made the UK an international outlier on deferral arrangements. The Chancellor supported the PRA’s intention to consult on reducing the length of pay deferrals to help firms to attract and retain talent.
Pensions
The government plans to create Australian or Canadian style pension “megafunds” to power growth in our economy. The ‘Pensions Investment Review: interim report’ has been published and the government published three supporting documents:
- Pensions Investment Review: Unlocking the UK pensions market for growth. This consultation seeks views on proposals to accelerate and enable scale and consolidation in the DC market; introduce minimum size requirements for default arrangements and limits on the number of default arrangements; and overrides for individual contracts to allow the bulk transfer of assets for contract-based schemes without individual savers consent. It considers what the role of employers should be in a more consolidated market, and whether those who advise them should be subject to more oversight. The consultation closes on 16 January 2025.
- Pension fund investment and the UK economy. This covers historic pension investment trends, international examples and the role of pension funds in economic growth.
- Local Government Pension Scheme: Fit for future, a consultation on proposals to strengthen the management of Local Government Pension Scheme investments. The proposals relate to asset pooling, local and regional investment, and scheme governance. The consultation closes on 16 January 2025.
The Chancellor confirmed significant consolidation of the Defined Contribution (DC) market through the Pensions Scheme Bill in 2025. We have continuously called for greater consolidation of DC as positive step in contributing to better pension performance, efficiencies, governance and saver outcomes. The government will legislate to require Local Government Pension Schemes (LGPS) to consolidate their assets into fewer, larger pools of assets.
We recommended that consolidation of assets in LGPS continue, for LGPS pools to meet their full potential on responsible investment, management of climate risks and investment in local growth and development.
The government will promote a greater focus on value provided by workplace DC pension funds. We have called for the government’s approach to shift the focus of pension investing from minimising cost to maximising long-term net value and outcomes. We will work with our Pensions Investment Group to consider our response to the consultations.
Alongside the Chancellor’s announcements the Lord Mayor stated his intention to ensure the full potential of the Mansion House Compact is achieved. We set out the need to consider how the Mansion House Compact could be developed to encourage further investment opportunities.
Capital Markets
The Chancellor highlighted how the UK’s vibrant and dynamic capital markets remain among the strongest and deepest globally and expressed her intention to build on these strengths.
Private Intermittent Securities and Capital Exchange System (PISCES)
The government will legislate to establish PISCES by May 2025. We welcome this. It will support our ask to streamline the interface between public and private markets. It is an example of the government’s commitment to innovation in UK capital markets, which we will continue to advocate for. We will engage with members and government on next steps for PISCES.
Revitalising UK capital markets and engaging with industry on growth markets
The Chancellor recommitted to increasing flexibility for firms and founders of British high-growth companies to support more public offerings in the UK. In the Financial Services Growth and Competitiveness Strategy (FSGCS), the government seeks views on key areas of opportunity to support firms’ use of capital markets, both private and public, to grow and list.
We set out the need for the government to engage with industry on how it can revitalise UK capital markets. This is a positive indication that our work on strategic enablers for growth markets, to be published in Q1 2025, will be welcomed by the government.
Retail investments
The new Lord Mayor, Alastair King, called on the government to revamp the ISA regime to encourage further investment in UK productive assets such as equites. This would help scale up British companies, improve returns for savers, and democratise the market by letting many more people participate. We have called for simplification of the ISA regime and would welcome incentives to encourage greater take-up of equity ISAs where these are more appropriate for savers than cash ISAs.
In the FSCGS, the government commits to tackling barriers to retail investment and improving financial outcomes for consumers. In our letters to the Chancellor over recent months, we have highlighted the need to create conditions that support retail investors’ access and confidence to invest in public market equity and debt, broadening the wealth-sharing benefits of investing. Retail investment will continue to be a focus for our work with our Capital Markets Group and we look forward to working with members to support the government’s objectives.
The Chancellor announced further legislative changes to the MiFID framework as part of the government’s commitment to reinvigorate capital markets and support growth across the UK. Learning the lessons from the events in the Nickel market in March 2022, the government will give the regulators fuller powers to appropriately oversee the off-exchange trading of commodity derivatives, while maintaining the international competitiveness of these markets. It will also commence the revocation of the detailed requirements in legislation that govern the organisation and operation of investment firms, as well as those relating to transaction reporting so that the regulators can deliver a more proportionate, streamlined and agile framework in regulatory rules.
These changes require legislation. To avoid any gaps in regulation, the government will work with the regulators and commence the relevant revocations when the rules are ready to come into force.
Technology and Innovation
The Chancellor announced a government pilot to deliver a Digital Gilt Instrument (DIGIT). In our pre-Mansion House letter to the Chancellor, we called for the government to drive global innovation and digitisation in the markets by issuing a pound sterling digital gilt. This announcement is therefore a welcome signal of the government's commitment to UK leadership in securities tokenisation.
The government published its National Payments Vision. We have advocated for the modernisation of UK financial services and welcome steps to ensure the UK payments landscape adapts to advances in technologies and innovations. In particular, the FCA's appointment as the UK’s lead regulator for Open Banking is a positive step towards paving the way for open finance.
Green and Sustainable Finance
The Chancellor announced a series of policies to promote the UK’s leadership in green finance and climate change, including a consultation on the value case for a UK Green Taxonomy, and to publish draft legislation to regulate ESG rating providers. HMT’s response to their earlier consultation can be found here. The FCA’s response today can be found here.
The Chancellor's sustainable finance framework also sets out plans to consult on economically significant companies disclosing information using future UK Sustainability Reporting Standards and to launch integrity principles for voluntary carbon and nature markets ahead of a consultation in the new year. The Chancellor highlighted the government’s co-launching of the Transition Finance Council with the City of London Corporation, following a recommendation from the Transition Finance Market Review. The government will open a consultation next year on how to take forward the manifesto commitment on transition plans.
We welcome the Chancellor’s recognition of the UK as a leader in transition finance, and the potential for the UK to lead in carbon markets. We support the progress made on key areas set out in the 2023 Green Finance Strategy. We will continue to press the government to work closely with our industry to create clear, sector-specific strategies to incentivise investment.
Other
The Chancellor confirmed that the PRA, HMT and the National Wealth Fund will work together to crowd in investment by insurers in productive assets, taking full advantage of the Solvency UK regime, including investment in clean energy projects.
HMT has published a consultation on creating a captive insurance regime and will consider further steps to improve the UK’s Insurance Linked Securities offer.
The Chancellor wants to support the mutual sector and has written to the regulators asking them to produce a report on the mutuals landscape and welcomed the establishment of an industry-led Mutuals Council to drive growth in the sector.