UK finance firms seek 'bold' reforms to counter Wall St ascendancy
Reeves to address City in milestone speech on Thursday
Investment, stock market expansion critical to economic growth
Sector emboldened by reform but faces Wall Street challenge
By Sinead Cruise and Carolyn Cohn
LONDON, Nov 13 (Reuters) -Britain's finance sector is counting on policymakers to deliver a rulebook revamp that prioritises growth and stops business slipping away to global rivals, amid fresh challenges to London's financial superpower status.
UK finance minister Rachel Reeves is giving her first Mansion House speech to leaders of the City on Thursday and is expected to outline the role the left-leaning Labour government wants them to play to help increase national prosperity.
But those attending the event are just as eager to hear how she might bolster the industry's prospects before a likely boom on Wall Street when President-elect Donald Trump returns to power.
Pressure is mounting after Trump vowed to "liberate" the U.S. economy and financial sector by slashing regulations and restructuring federal agencies.
Samuel Gregg, political economist at the American Institute for Economic Research, said the sector in Britain needed to respond fast.
UK finance firms "should be using the second Trump presidency as an opportunity to tell government that financial deregulation and lowering corporate tax rates can be avoided no longer," he said.
Reeves' predecessor and officials at the Bank of England have already flexed post-Brexit freedoms to tailor financial rules, beginning with the Edinburgh Reforms package in 2022.
More recent tweaks to Basel global bank capital regulation and proposals to slash deferral periods on bonus payouts have also been interpreted as signs of increased ambition to diverge from the EU.
Britain leapfrogged the EU with its commitment to a 2027 rollout of shorter settlement cycles in securities trading, after the United States, Canada and Mexico made the reform earlier this year.
QUID PRO QUO
Before Labour's landslide summer election win, Reeves, a former Bank of England economist, said she would "unashamedly champion" the UK's financial sector.
Her government needs the industry's tax receipts, which totalled 110.2 billion pounds ($140 billion) in 2023, equivalent to more than half the UK health budget, a study commissioned by the City of London Corporation and TheCityUK showed.
In the biggest revenue-raising budget for a generation last month, Reeves introduced a smaller than expected rise in tax on the private equity performance fees and resisted pressure to hike a tax on profits made by banks.
"UK policymakers have a real opportunity to move the UK in a different direction," said Monique Melis, Kroll's Global Head of Financial Services Compliance and Regulation.
Building closer ties to the Middle East, Asia-Pacific, Africa and the United States could give the UK "a real edge in the future," she said.
But staying ahead of competitors who have their own plans to cash in on innovations like green finance, digital currencies and artificial intelligence will not be easy.
Kate Dawson, sector lead of capital markets at KPMG UK's Regulatory Insight Centre, said some EU rules will still encumber UK firms and the bloc's push for 'strategic autonomy' bodes poorly for UK firms seeking access to EU markets.
"The EU is introducing rules that will have extra-territorial impacts," she said, flagging examples like the Corporate Sustainability Reporting Directive, the Corporate Sustainability Due Diligence Directive and the EU AI Act.
OUTDATED FRAMEWORK
A report published last month by think-tank New Financial suggested UK banking, finance and capital markets have declined in relative terms in the past decade compared with international markets across nearly 60 metrics of value and activity.
The think tank said Britain's regulatory framework, crafted after the 2008-9 financial crisis, was outdated, over-complex and lacking vision, and that rules need to encourage more risk taking, not less.
"I hope Rachel Reeves is bold and uses the opportunity to look at our overall approach to regulation and risk in this country," David Postings, Chief Executive of trade body UK Finance, said.
Reeves is expected to call for a reboot of the Financial Ombudsman Service to boost consumer trust in financial services as the industry braces for a possible multi-billion pound consumer redress bill linked to motor finance commissions.
She is also likely to outline significant pension industry reforms to turbo-charge economic growth, after announcing a review of the pensions system in July.
This could include consolidating assets in the 360 billion pound Local Government Pensions Scheme into a number of larger investment pools, a model which has proved successful elsewhere.
Reeves could also reboot a consultation from the previous government to make it easier for companies to extract surpluses from fully-funded defined benefit pension schemes, potentially providing more capital for companies and pensioners to invest in public and private UK companies, housing and infrastructure.
Nikesh Patel, Head of Client Solutions UK at Van Lanschot Kempen said such schemes could collectively amass as much as 1 trillion pounds of firepower over the next 10 years.
($1 = 0.7844 pounds)
Editing by Christina Fincher
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
