HM Treasury says Edinburgh Reforms ‘hail next chapter for UK Financial Services’

Chancellor of the Exchequer Jeremy Hunt today unveiled the “Edinburgh Reforms” of UK financial services – over 30 regulatory reforms which HM Treasury says are intended ‘to unlock investment and turbocharge growth in towns and cities across the UK.’ HM Treasury has released a statement this morning as follows:

 

• Chancellor of the Exchequer Jeremy Hunt unveils new “Edinburgh Reforms” of financial services, to help turbocharge growth and deliver a smarter and home-grown regulatory framework for the UK – that is both agile and proportionate.
• Speaking at an industry roundtable in Edinburgh today, the Chancellor will announce new plans to seize the benefits of Brexit by setting out a detailed timeline establishing the government’s approach to repealing burdensome pieces of retained EU law.
• Reforms deliver the next chapter of the government’s vision for UK financial services, set out at Mansion House 2021.

The Chancellor will set out plans to repeal, and replace, hundreds of pages of burdensome EU retained laws governing financial services. This will establish a smarter regulatory framework for the UK that, is agile, less costly and more responsive to emerging trends. These plans included a commitment to make substantial legislative progress over the course of 2023 on repealing and replacing EU-era Solvency II – the rules governing insurers balance sheets which is expected to unlock over £100 billion of private investment for productive assets such as UK infrastructure. The financial services sector is vital for Britain’s economic strength, contributing £216 billion a year to the UK economy. This includes £76 billion in tax revenue, enough to fund the entire police force and state school system, while employing over 2.3 million people – with 1.4 million outside London. As announced in the Autumn Statement, the government will look to announce changes to EU regulations in four other high growth industries by the end of next year, including digital technology, life sciences, green industries and advanced manufacturing. Chancellor of the Exchequer, Jeremy Hunt said:

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 home-grown regulatory regime that works in the interest of British people and our businesses. And we will go further – delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences.

Economic Secretary to the Treasury, Andrew Griffith said:

The UK is a financial services superpower – and we have long benefited from, and are committed to, high quality regulatory standards. Scotland’s role in maintaining our status as the global benchmark for regulation is crucial – with Edinburgh and Glasgow the two largest UK hubs outside of London. Our reforms deliver smarter regulation of financial services that will unlock growth and opportunity in towns and cities across the UK.

The work to repeal, and where appropriate replace, retained EU law governing the sector has been guided by industry – and split into two initial tranches. These will focus on delivering reform to areas which provide the most significant boost to UK growth and competitiveness, and we will set out further detail on future tranches over time. Today’s announcement delivers the next chapter in the roadmap for UK announced at Mansion House 2021 for a UK financial services sector that is open, sustainable, and technologically advanced – one that is globally competitive and acts in the interests of communities and citizens. This vision will create jobs, support businesses, and power growth across all four parts of the UK.

A competitive marketplace promoting the effective use of capital

The Edinburgh Reforms ensure that the UK’s financial markets are among the most open and attractive in the world. They deliver this by overhauling the UK prospectus regime to make it more attractive for firms to list and raise capital here; reforming the rules governing Real Estate Investment Trusts, to reduce friction and allow savers to more easily access higher returns; formally reviewing the provision of investment research in the UK, including the effects of the EU’s MiFID unbundling rules, which aren’t applied in leading markets such as the US; and working with the regulators and companies to trial a new class of wholesale market venue that operates on an intermittent basis – improving companies access to capital before they publicly list. The government has also announced that the ring-fencing regime will be reformed in response to the recommendations of the Skeoch Review – including by freeing retail focussed banks from the regime – easing unnecessary regulatory burdens on firms while maintaining protections for depositors. The Chancellor has also issued new remit letters to the Financial Conduct Authority and Prudential Regulation Authority emphasising the new secondary competitiveness objectives. Regulators will have a duty to facilitate, subject to aligning with relevant international standards, the international competitiveness of the UK economy and its growth in the medium to long term. We are committed to seeing financial service firms deploy more capital in productive assets such as UK infrastructure and low carbon and clean energy. This will be facilitated by Long-Term Asset Funds – a new type of fund structure tailored to the UK market, replacing the EU’s ineffective European Long Term Investment Fund regime, which will be repealed from the UK rulebook. The LTAF regime has recently seen its first application from an issuer of this new type of fund.

Delivering for consumers

The government is committed to enabling consumers to access the benefits of new products and technologies, while ensuring they remain protected. To support this, the government is today publishing its first consultation on proposals to modernise the Consumer Credit Act – simplifying the regime to encourage innovation in the credit sector and cutting costs for consumers and businesses.

A sector at the forefront of innovation and technology

The reforms build on the UK’s desire to harness the benefits of emerging technologies, including committing to shortly publish a consultation on proposals to establish a UK Central Bank Digital Currency– which could one day see Brits using a digital pound, capturing the benefits of the underlying blockchain technologies. Other measures will see the Investment Management Exemption extended to cryptoassets, ensuring more overseas investment can flow into the sector – and the government has recommitted to establishing the Financial Markets Infrastructure Sandbox in 2023, allowing firms and regulators to safely test, adopt and scale new technologies that could transform financial markets.

A world leader in sustainable finance

The UK is working to become the world’s first net-zero aligned financial centre, and today’s measures will further deliver on this ambition, including by committing to publish a new green finance strategy in early 2023, and to consult on bringing Environmental, Social and Governance (ESG) ratings providers into the City Watchdog’s regulatory perimeter, to ensure these products are transparent and use consistent standards. Achieving this ambition will see more investment in sustainable energy supplies such as nuclear, hydrogen and offshore wind – delivering new opportunities and well-paying jobs. More broadly, the government’s Financial Services and Markets Bill successfully completed its remaining stages in the Commons on Wednesday and is expected to receive Royal Assent by Spring 2023. This further delivers on the government’s vision for financial services, including by bringing certain types of stablecoins within the payments regulatory perimeter; protecting access to cash for millions of people that reply on it; and enabling the Payments Systems Regulator to force banks to reimburse the victims of Authorised Push Payment (APP) fraud.