The new Labour government has placed financial services at the centre of its plans to grow the UK economy, and UK regulators have an important role in facilitating this. But what does this actually mean for the sector and how it is regulated? After years of bolstering prudential safeguards following the 2007-2008 global financial crisis, are we entering a new era of deregulation? As the UK seeks to strengthen its position as a leading financial centre outside the EU, will we see increasing divergence of standards? If so, what are the implications for financial services firms, particularly those doing business across borders? We explore these issues and more in a new briefing on the UK’s vision for financial services in 2025 and beyond.
In her first Mansion House speech on 14 November 2024, the Chancellor of the Exchequer, Rachel Reeves, said that the UK “has been regulating for risk, but not regulating for growth”. She announced that the government will publish the first ever Financial Services Growth and Competitiveness Strategy in April 2025. This document will set out the government’s approach to the sector for the next ten years and serve as the “central guiding framework through which the government will try to achieve sustainable, inclusive growth for the sector and secure the UK’s ongoing competitiveness as an international financial centre”.
This sentiment is neither new nor unexpected, given the PRA and FCA’s new secondary competitiveness and growth objectives, and the consistent messages of the UK government over the past few months. The UK regulators have also emphasised their commitment to economic growth in a number of speeches and more recently in evidence given by the PRA to the House of Lords’ Financial Services Regulation Committee.
But what exactly does “regulating for growth” look like? Sam Woods, CEO of the PRA, has cited initiatives such as the reduction of “bureaucratic processes and some excess conservatism” and making regulation more “efficient, evidence-based, and effective in supporting competitiveness and growth”. Nikhil Rathi, CEO of the FCA, has talked about the need for “operational improvements” in the FCA’s processes, such as digitisation and more efficient enforcement actions.
In our briefing, we explore several recent policy initiatives for financial services that demonstrate how the government and UK regulators plan to deliver on their commitment to economic growth in 2025 and beyond, including:
- the PRA’s final policy on implementing Basel 3.1 standards, which was amended following consultation, among other things, to reduce the cost of SME lending;
- the new “strong and simple” prudential framework for small UK banks and building societies;
- proposals to liberalise the bank ring-fencing regime; and
- the FCA’s call for evidence on ways to simplify its retail conduct requirements and make them more outcomes-based.
These are just a few examples of steps the UK government and financial services regulators are taking to boost the UK financial services sector and the economy as a whole.
The journey towards growth and competitiveness is just beginning. There is still much to be done, and we can expect an increasing number of UK regulatory developments in the coming years to support growth. But one of the difficulties faced by the government and regulators will be to determine exactly how to achieve economic growth whilst ensuring financial stability is preserved, not to mention consumer protection. It is also important to remember that while regulators have an important role in facilitating the government’s growth agenda, they cannot do this alone. When striking that balance and resetting their risk appetite, they will need the support of the government and of Parliament, to which they are ultimately accountable.
For more information, please see our full briefing here.
