UK Seeks to Boost Financial Sector Competition with New Reform

According to sources close to the Treasury, Reeves will also unveil fresh guidelines for the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) either during her address or shortly thereafter. These guidance documents, known as remit letters, aim to clarify how regulators should navigate their duties under a mandate to elevate the UK’s global financial standing. Insiders familiar with the policy discussions noted that the new instructions are intended to refine regulatory processes, making them less obstructive to business growth and more attuned to the sector’s competitive needs, per Bloomberg.

In what promises to be a strategic pivot in Labour’s approach to the financial sector, Reeves’s address is widely seen as a crucial opportunity for the party to reset its relationship with finance leaders. Since taking office in July, Labour has had a mixed rapport with business heads, compounded by a recent Budget announcement that included tax hikes. Reeves’s November speech represents a chance for the government to demonstrate its commitment to fostering a vibrant financial sector.

Prime Minister Keir Starmer has hinted at these forthcoming reforms, recently telling attendees at Labour’s international investment summit that his administration would be “marching through the regulators” to eliminate excessive bureaucratic constraints. This approach underscores Labour’s intention to streamline oversight while also creating conditions conducive to sustainable growth.

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Ambitious Reforms on the Horizon

Building on measures initiated by the previous Conservative government, which introduced similar remit letters in December 2022, Reeves is anticipated to take an even more assertive stance. Her plan is expected to address potential overlaps in regulatory roles, as well as to cut unnecessary rules and costs that are hampering the industry’s expansion, according to sources who declined to be named. This could mark a significant shift from the traditional regulatory approach, emphasizing a more collaborative dynamic between government and financial institutions.

A Treasury spokesperson confirmed, “At Mansion House, the chancellor will set out how she will work in partnership with industry and regulators to deliver growth. This will include providing the stability the financial services sector needs to grow and delivering the reform it needs to prosper.” The spokesperson added that Reeves’s vision includes aligning the sector’s expansion with broader investment goals that span the UK.

There appears to be considerable support from industry executives for this “competitiveness regime,” as it is being called. However, some advocates are pushing for more aggressive measures, including the possibility of making competitiveness a central consideration in regulatory decision-making. Another proposed reform involves the reinstatement of the so-called “call-in” power—a controversial mechanism that would allow ministers to override regulatory bodies. Although dropped last year, insiders suggest that revisiting this power would require legislative changes and might not be immediately implemented, per Bloomberg.

Consideration of Structural Changes

Reeves’s speech may also address longer-term considerations, including potential structural shifts in the FCA and PRA. Labour reportedly examined the possibility of restructuring these regulatory bodies before the July general election, a move that could be re-evaluated if regulators are not seen as fully embracing the government’s competitiveness agenda.

While opinions in the financial sector differ, with some advocating for a complete overhaul of regulatory structures and others favoring a more measured enhancement of existing rules, the objective remains clear: to support a financial ecosystem that can both compete internationally and fuel domestic economic growth.

Source: Bloomberg