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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Jeremy Hunt insists City reforms do not ‘unlearn the lessons’ of 2008 financial crisis – as it happened

Jeremy Hunt City (Geopolitical Entity) United States Andrew Griffith
An aerial view of the City of London skyline.
An aerial view of the City of London skyline. Photograph: Victoria Jones/PA

Afternoon summary

Time to recap

The government’s plan to unpick the ring-fencing rules protecting retail banking operations from an investment banking blow-up has concerned some experts.

Dr Angela Gallo, senior lecturer in finance at Bayes Business School, urges caution around any plans to de-regulate this part of the financial services industry, saying:

“Together with the removal of the bank bonuses and the discussion on call-in power, this political decision seems to have little to do with fixing the financial system or ensuring financial stability

“These were the main arguments behind many of these reforms in the aftermath of the financial crisis, but this seems to have more to do with a wish to deregulate.

“Increasingly, the initiatives of the government seem to ultimately target the role of central banks and regulators. While ring-fencing was a costly measure, the system has already adapted to it.

“De-regulation, unless carried out with a clear objective, can be dangerous.”

Investment company Abrdn has also welcomed Jeremy Hunt’s plans.

Following a roundtable with financial services leaders earlier today, at which Chancellor Jeremy Hunt unveiled today’s “Edinburgh Reforms”, Abrdn’s CEO Stephen Bird says,

“As a global investment company, abrdn is a vocal advocate of the strengths of the UK as a financial centre, and those of Scotland in particular, but the world is moving fast and we must pick up the pace of reform to win back our place in a competitive world.

We therefore welcome today’s announcement with its clear focus on competitiveness and future success of the UK financial services sector. Financial services is a critical enabler of any growth economy, we gather capital and put it to work to create better schools, hospitals and homes and when invested wisely, we assist in the long term provision for the futures of this and the next generation.

We need to see a mentality shift in the country overall that encourages innovation and partnership that delivers better outcomes for all citizens.

Regulation is important as a protection for all of us, but it has to be simpler and more thoughtfully designed to deliver the right outcomes with less bureaucracy.”

Updated

In other business news, the head of Penguin Random House, the world’s largest publisher, is to step down at the end of the year after a US judge blocked a planned $2.2bn merger with its rival Simon & Schuster.

Markus Dohle had resigned “at his own request and on the best of mutual terms”, the company said in a statement on Friday.

Nihar Malaviya, who is president and chief operating officer of Penguin Random House U.S., will take over as interim CEO from January 1st, the company added.

Dohle said in a press release that:

“Following the antitrust decision in the U.S. against the merger of Penguin Random House and Simon & Schuster, I have decided, after nearly 15 years on the Executive Board of Bertelsmann and at the helm of our global publishing business, to hand over the next chapter of Penguin Random House to new leadership”.

Hunt: We have learned lessons of 2008 crash

Jeremy Hunt has denied that it is reckless to be relaxing financial regulations, speaking to broadcasters in Edinburgh where he’s unveiling today’s proposals.

Asked whether he is effectively sowing the seeds of the next financial crash, the Chancellor insists that the banking sector is stronger than before the collapse of Lehman Brothers 14 years ago:

“No, because we have learned the lessons of that crash, we put in place some very important guardrails, which will remain.

But the banks have become much healthier financially since 2008. We put in place a process so that financial issues can be resolved, which we didn’t have before.

On that basis, we also want to make sure they can compete with other financial centres, whether it’s the United States or Asia, and Scotland is in a fantastic place to do that. That’s why these reforms will make a big difference.”

CBI: Hunt 'absolutely right' to use financial services reforms to drive growth

Britain’s biggest business group is backing Jeremy Hunt’s plans.

Flora Hamilton, director of financial services at the CBI, which has been pushing the chancellor to develop a growth strategy for the UK, says:

“The Chancellor is absolutely right to use his ‘Edinburgh Reforms’ of the financial services sector as an opportunity to drive UK growth, alongside taking sensible precautions to protect consumers, businesses and financial stability.

“Reforming the ringfencing regime for banks, bringing a broader range of investment-related cryptoasset activities into UK regulation and overhauling the UK’s regulation of prospectuses can all help build a more dynamic, competitive and future-focused financial sector that will deliver gains for the whole UK economy.

“While bringing forward secondary legislation to implement the Wholesale Markets Review reforms - as well as confirming the early 2023 publication of the Green Finance Strategy – are welcome moves, firms remain concerned about a lack of policy clarity and absence of public consultation on the future of the UK Taxonomy.

“The Chancellor’s decision to bring industry experts together to determine the opportunities and risks associated with divergence represents a sensible approach to the post-Brexit regulatory environment in financial services. Developing this cooperative approach across the whole economy will support a new regulatory approach, one more geared towards delivering better outcomes for consumers, for the environment, and ultimately for the country.”

City Minister Andrew Griffith has told Bloomberg TV that he and Jeremy Hunt want the City of London, and the broader UK, to compete on the world stage and take advantage of opportunities from Europe and around the word.

Asked if it was really the EU that was holding the UK back, Griffiths says he’s not fixated on any particular market, but he and the chancellor “want to be the best version of ourselves”.

He argues that the government wants to equip the UK financial services sector with a rule book that gives it the best chance of competing in a agile and flexible way.

Here’s the clip:

The package of measures unveiled by Jeremy Hunt today will do little to reverse the post-Brexit flow of financiers to the continent, warns Liam Proud of Reuters Breakingviews.

He writes:

The context for the government’s announcement is that 7,000 financial services staff and £1.3 trillion of assets have hopped across the channel since Britain left the European Union, according to EY.

Brexiteer prime minister Rishi Sunak is committed to making a success of the split. Hence Friday’s package, long trailed as a “Big Bang”, supposed to turbocharge the City.

It won’t. The meatiest aspects are changes to ringfencing rules separating retail and investment banking, and the senior managers regime, which holds top bankers accountable for corporate wrongdoing.

Hunt may take smaller lenders out of the ringfence, and allow bigger ones to offer some wholesale banking products on the retail side, like inflation derivatives.

Eventually, he could end the regime if banks prove they can safely be wound down. Hunt hasn’t spelled out changes to the senior-manager rules, but he seems likely to weaken them, since his review will consider their “proportionality”.

Neither of those regimes have anything to do with Europe.

UK finance’s main problem in recent years has been its loss of direct access to European financial markets and the passporting rights, which allowed major global banks to serve the EU from London, Proud points out.

The only way to undo the damage would be to align with European rules indefinitely or to re-join the bloc, both of which are political no-gos.

Hunt’s fiddling will therefore do little to stem the bleeding.

Here’s the full piece:

UK’s Big Bang barely mitigates City’s Brexit Pain

City minister Andrew Griffith has pledged that the deposit guarantee scheme for people’s savings in banks remains “absolutely secure”.

The economic secretary to the Treasury told BBC Radio 4’s World At One programme that:

“What we’re talking about here is a broad tapestry of regulation.

“There’s nothing that removes the Bank of England in that case, (its) duty to make sure that the Bank and the financial system is sound. They’ve been consulted as part of these reforms.”

Sir John Vickers, the economist who led a major review of the UK’s banking industry after the financial crash, said “unravelling” the ring-fencing regime on Britain’s banks would be a “huge mistake”.

Vickers, the Warden of All Souls College, Oxford, told Radio 4’s World at One programme that he would be concerned if ministers thought the regime (which protects retail bank operations from other shocks) was no longer needed.

He says:

“I’d love to have more clarity from the Government on where they stand on this.

“If they’re saying, ‘well, it’s worked OK for now, but maybe over time we’re not going to need it and we can roll it back’, then I would get very concerned.

“So, adjustments to a given bit of the architecture: fine. Going down the path to unravelling this regime: huge mistake in my view.”

The Independent Commission on Banking, led by Vickers, recommended in 2011 that banks should ringfence their high street banking businesses from their “casino” investment banking arms.

Investment campaign group ShareAction is concerned that Jeremy Hunt’s “Edinburgh Reforms” could put the public at risk.

Lewis Johnson, director of policy at ShareAction, warns there are some concerning trends in today’s announcement, such as the move to give City regulators a new “secondary objective” to encourage growth in the UK economy.

Johnson says:

Firstly we are concerned that the public will be at greater risk from the FCA’s Competitive Objective.

We need strong, impartial oversight to provide confidence for investors. Our fear is if this proposal is adopted we’ll turn the regulator into a cheer leader for business.

ShareAction are also concerned that the government plans to repeal and replace Solvency II – the rules governing insurers balance sheets.

Johnson fears this could be a ‘reckless’ move:

The Solvency II reforms are a blow for sustainable finance and do nothing to align the insurance sector with the Government’s own net-zero ambitions.

Reducing capital requirements for insurers is a reckless decision in the current period of turbulence, and there is no guarantee that it will succeed in its stated aim of unlocking capital for green infrastructure investment.

The Treasury says that “repealing and replacing EU-era Solvency II” is expected to unlock over £100bn of private investment for productive assets such as UK infrastructure.

Updated

Hunt: We must not unlearn lessons of 2008 crisis

To recap….Chancellor Jeremy Hunt has insisted that his overhaul of banking regulations announced this morning do not mean he has forgotten the lessons learned following the 2008 financial crash.

Mr Hunt was asked, during the Financial Times’ Global Boardroom webinar, whether he was worried the new reforms dial up risk in the sector more than it should be.

He responded:

“Absolutely not. We have to make sure that we do not unlearn the lessons of 2008, but at the same time recognise that banks today have much stronger balance sheets, and we have a much stronger resolution system if things do go wrong.

“In that context, it is perfectly sensible to make pragmatic changes just as the ones we are announcing today.

“But we are doing so very, very carefully to make sure that the UK is competitive, exciting, the place to be and the place to invest, but also that we don’t lose the guardrails that were put in place after 2008.”

Updated

Q: Is there any scope to expand the shortage of occupation list, the FT’s George Parker asks?

This is the list of roles where the UK lacks skilled workers, so skilled worker visas are available.

Chancellor Jeremy Hunt replies that immigration is a very sensitive issue, but he believes there is a role for controlled migration in a modern economy.

Hunt says it’s important to be able to attract the brightest and best, and have a mechanism to fill shortage professions.

But, the government needs to show the UK public that this doesn’t undermine their ability to earn a decent wage, he adds.

Jeremy Hunt also says he doesn’t wish to see pay rises for public-sector workers that might reduce the pace at which inflation falls back.

He told the FT’s Global Boardroom event that the surge in inflation was eroding incomes (the CPI inflation index hit 11.1% in October).

Hunt says we owe a great deal to public sector workers, for their incredible hard work during the pandemic.

But he claims that if the government makes the ‘wrong choices’ now, inflation won’t fall back as expected, and will become a permanent problem.

Hunt says:

We know that the thing that is making them [public-sector workers] most angry is the erosion of their pay through inflation.

“We just have to be really careful not to agree to pay demands that have the opposite of the intended effect, because they lock in high inflation.

Jeremy Hunt is holding an interview with the Financial Times now (being streamed here).

The chancellor tells the FT’s Global Boardroom conference that his reforms will help make the UK the most competitive financial services base in Europe, and one of the most competitive in the world.

He suggests they will help the UK develop the next Silicon Valley, and show investors that they have to be in London and in the UK.

He agrees, though, that the reforms are not on the same scale to the original Big Bang triggered by conservative chancellor Nigel Lawson in 1986.

Hunt argues that the government has been prepared to ask big questions, such as changing the ring-fencing rules.

He insists today’s proposals are very structured and thoughtful, and based on independent reviews.

Stability is as important as growth, Hunt points out.

Q: But some of the reforms you are scrapping came after the financial crisis, and were considered for years before being implemented. Are there risks to removing them?

Hunt insists there are not. He talks about the need to be careful not to unlearn the lessons of the 2008 crisis.

The banks have much stronger balance sheets today than before the financial crisis, he insists, adding that the UK has a much better resolution system for failing banks.

[In June, the Bank of England said the UK’s largest banks are no longer “too big to fail”]

Hunt argues it is sensible to make pragmatic changes, and that the government is acting very very carefully to make sure the UK is competivie, and an exciting place to be and to invest.

He also talks about the need for a 20 year plan to develop the next Silicon Valley, denying that this is a ‘boosterish plan’.

The chancellor says the UK already has 7 of the top 20 universities, but a strong financial services sector is an important pillar in supporting innovation.

Q: Are you worried that London has lost financial services business to other European cities such as Amsterdam and Paris because of Brexit?

Hunt says the City has shown remarkable resilience – people would have assumed in 2016 that more business would have been lost to European cities than has actually happened.

He adds that the UK can have a tremendous future outside the EU.

And touching on the UK economy, Hunt says he is more confident about next year’s economic outlook than a number of others.

Updated

Full story: Jeremy Hunt sets out sweeping reforms to financial sector

The chancellor has announced plans to reform and repeal a number of City regulations, including rules originally meant to protect the UK from another financial crisis, in order to “unlock” investment and “turbocharge” growth across the UK.

Jeremy Hunt’s package of more than 30 reforms was announced as he travelled to Edinburgh to meet a group of chief executives from banks and insurers, who the government hopes will be in a stronger position to grow and compete with international peers as a result of the deregulation drive.

The package, known as the “Edinburgh reforms”, is wide-ranging, spanning from plans to consult on a new central bank digital currency to changing tax rules for investment trusts involved in real estate, and reforming rules around short selling – where investors bet that the price of an asset will drop.

The government said it also plans to trial a new trading venue that would operate intermittently but allow companies to raise money from investors before officially floating shares on the public market.

However, the package also includes plans to repeal UK rules introduced in the wake of the 2007-8 financial crisis, including the senior managers’ regime, which holds bosses personally and financially responsible for problems that occur on their watch, and the ringfencing rules that are intended to protect everyday customers by separating their deposits from riskier investment banking operations.

While both are UK rules that could have been changed regardless of leaving the EU, the government has tried to present the package as one of the ways the country is benefiting from Brexit.

Here’s the full story:

The proposed relaxation of the ring-fencing rules [which keep investment banking separate from retail banking] is “significant news for small lenders”, says Kam Dhillon, principal associate at the law firm Gowling WLG.

Dhillon adds:

Whilst deregulation has the potential to boost the competitiveness of UK banks (and the UK financial services sector more broadly) - both domestically and in global markets - we do need to be mindful of concerns around financial stability risks (and ensure they are appropriately addressed).”

The government has suggested that ring-fencing has led to bank capital becoming trapped with the institutions, as they try to protect their retail banking arms from shocks.

Oil and gas producers will urge Jeremy Hunt today to scrap the windfall tax on their profits if energy prices fall.

Hunt and Treasury officials are due to meet with oil and gas producers, and their trade body Offshore Energies UK, in Edinburgh.

The industry will warn Hunt that the windfall tax – which he increased from 25% to 35% in the autumn statement – will lead to a rapid reduction in UK investment and jobs, cutting the amount of oil and gas produced here.

Deirdre Michie, OEUK’s chief executive, will put “three key asks” to ministers:

  1. Scrap the windfall tax on homegrown energy when oil and gas prices fall back to normal levels - as originally pledged by the Treasury when the windfall tax was first introduced.

  2. Rebuild investor confidence – starting with a lasting, predictable tax regime that supports consumers and industry

  3. Engage with the industry long-term – including building a lasting consensus with other political parties and stakeholders

Brent crude has dropped to its lowest since last December this week, at $76.30 per barrel. It spiked to almost $140 per barrel in March this year, after the Ukraine invasion.

Gas prices are still uncommonly high. The day-ahead wholesale UK gas price is 355p per therm today, compared with 41p two years ago.

The next-day UK wholesale gas price
The next-day UK wholesale gas price Photograph: Refinitiv

Emma Mogford, fund manager at Premier Miton Monthly Income Fund, suggest the loosening of City regulations should spur economic growth and help ‘revive’ the economy.

“I see this as the beginning of a more positive regulatory environment for banks in the UK. Years of increasing capital requirements drove banks to reduce the riskier parts of their lending and the knock on effect of lower lending had been negative for economic growth.

Today’s announcement, combined with the reduction in the extra tax that banks pay, marks a swing in the pendulum towards more supportive regulation and recognises that the banks can now play an important part in reviving the UK economy.”

William Wright, the founder of the thinktank New Financial, says today’s reforms recognise that the City needs to channel investment and capital into UK companies and the UK economy, rather than focusing on its role as a host for international banks.

Updated

Sunak: reforms will keep financial sector competitive

Prime minister Rishi Sunak has insisted that regulation of the financial services sector remains “robust” despite today’s plans to relax banking safeguards introduced after the 2008 financial crisis.

PA Media have the details:

Asked if he was being reckless in relaxing rules on investment banks, the prime minister told broadcasters during a visit to RAF Coningsby in Lincolnshire:

“No, the UK has always had and always will have an incredibly respected and robust system of regulation for the financial services sector. Of course that’s the right thing to do.

“But it’s also important to make sure the industry is competitive. There are a million people employed in financial services and they’re not just in London, in the City; they’re spread across the country, in Edinburgh, in Belfast, in Leeds, in Bournemouth.

“Today’s reforms will ensure the industry remains competitive, we can create more jobs, but of course this will always be a safe place where consumers will be protected.”

Updated

Labour: Ring Fencing and Senior Managers Regime were introduced for good reasons

Tulip Siddiq MP, Labour’s shadow City minister, warns that today’s changes could undermine the City’s competitiveness:

“Introducing more risk and potentially more financial instability because you can’t control your backbenchers is this Tory government all over.

That this comes after the Tories crashed our economy is beyond misguided.

“Reforms such as Ring Fencing and the Senior Managers Regime were introduced for good reason.

“The City doesn’t want weak consolation prizes for being sold down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.

“Its competitiveness depends on high standards, not a race to the bottom.

“The next Labour government will give financial services the certainty they need to invest in the jobs and industries of the future through our Green Prosperity Plan, and our ambition to make Britain the post-Brexit, homegrown startup hub of the world.”

Updated

Today’s ‘Edinburgh reforms’ could be watered down, predicts the Macfarlanes head of policy for asset management, Gavin Haran.

Haran says that proposed reforms are bold.

The scrapping of some regulations, such as PRIIPs and ELTIFs, make sense because the UK is already divergent from the EU in those areas. The industry has been calling for some of the proposed reforms like revisiting the VAT treatment of investment funds; others are expected, such as changes to the UK’s regulatory architecture.

However, a lot will depend on the details that emerge from subsequent detailed reviews. For instance, if the UK does opt to re-bundle payments for research, will managers opt to return to charging their clients for it?

The thrust of the reforms is to make UK firms and markets more competitive, and to make the UK a more attractive environment for global firms that no longer look to London and Edinburgh as a base to access European-wide markets from [following Brexit], Haran explains, adding:

A further clear aim is to support long-term investment in the economy by freeing up bank capital for lending, tinkering with the tax incentives for funds, and streamlining various capital markets rules. Again, a lot will depend on the outcomes of the reviews, but even if the changes are small, the result will be a UK that is divergent from EU rules.

The reforms try to offer something to everyone, but there are definite risks attached, particularly in changes to the ring-fence and senior managers’ accountability. It is possible that the reforms could be watered down through the consultation process. The regulators too are likely to be less keen to remove some of the rules that they had a hand in creating.’

Updated

The UK government is proposing revoking the PRIIPs Regulation, which protect consumers by governing how a range of investment products are marketed to retail investors.

The Treasury say:

The PRIIPs Regulation has been widely criticised due to the misleading information that it requires be provided to investors and the unnecessary burden that it places on firms.

Claire Cross, partner at law firm Corker Binning, is concerned that chancellor Hunt is ignoring the history lessons from the 2008 financial crisis, when regulators failed to spot and act against dangerous risk-taking:

“Whilst a desire to increase economic growth and attract back business that was lost due to Brexit is laudable, trying to achieve this by the relaxing of regulations will not, history suggests, end well. We have already been through one cycle of light touch financial regulation which ultimately resulted in the 2008 financial crash. The then regulator, the FSA, was the watchdog who didn’t bark. It’s light touch approach was roundly criticised and subsequently lead to its abolition.

It was replaced with the FCA and PRA who set out their stall as more intrusive regulators who would pay closer attention to market participants and be unafraid to ask more questions. A central plank of their new system was the Senior Managers and Certification Regime (SCMR) which was designed to increase accountability, culture and governance in financial services firms.

If Jeremy Hunt tears up the rule book he will need to be careful, change should not be made for changes sake. Here’s hoping he, and the regulators, have learned their lessons from the past.”

Chris Hayward, policy chairman at the City of London Corporation, denied that Hunt’s reforms will only help the City at the margins.

Hayward insists that the changes are ‘great news’ for the financial and professional services sector, and will stimulate growth.

Speaking on Sky News, he explains:

I think this is reinjecting a growth economy into the United Kingdom.

We’ve seen precious little growth in the UK’s economy in the last 15 years, Hayward points out.

Today’s changes are not about mass deregulation, though, he adds.

Q: Isn’t there unease that the government plans to relax the ring-fencing rules?

Hayward explains that the ring-fencing rule changes [to regulations keeping investment bank and consumer bank divisions apart] only appy to smaller banks.

So it’s not a big threat, or a big deregulatory measure, Hayward adds, but will relax the reins for those retail banks and help them remain competitive.

Q: Are you worried that changes to the Senior Managers Regime could encourage excessive risk-taking?

Hayward says accountability is very important, but the changes are not a major concern.

The review of the UK’s Senior Managers and Certification Regime (SM&CR) is unlikely to bring wholesale changes to the regime, predicts Sidika Ulker, financial regulatory counsel at the leading law firm Ashurst:

It appears it should allow for some proportionality – and the industry would hope – more certainty. I believe the review will generally show that the regime, has, at a macro level at least, brought good outcomes, so I doubt we will see material change.”

“This is a well-timed and wide ranging reform proposal. It is surprising that it has taken the Treasury six years to deliver on low hanging benefits in the post Brexit era. Proposals in the digital space deliver good signalling but we are still lagging behind Europe.

It is an incredibly important step for the UK to reassert itself as a global financial services hub.”

[Reminder: The Senior Managers Regime means senior bank executives can face penalties such as fines and bans if they didn’t take “reasonable steps'’ to prevent infractions].

Talk of a Big Bang 2 "may well be overdone"

Today’s proposals fall short of the exciteable talk of a “Big Bang 2.0” which former chancellor Kwasi Kwarteng promised back in September.

So explains Jonathan Herbst, global head of financial services regulation at law firm Norton Rose Fulbright.

Herbst says “The direction of travel will definitely be welcome”, but says we shouldn’t overplay the significance of the changes being announced today:

There is no doubt the measures move the needle in some areas and it will be interesting to see how reforms relating to ring-fencing, the SMCR, PRIIPs, and research play out. However, it is important for people not to overplay this - there is no sense of any move back to a pre-financial crisis world. Most of the UK regulatory regime reflects either international commitments or policy developed over many years to reflect the lessons of experience. So, the talk of a Big Bang 2 may well be overdone.

“Of course, the sector will not just be reading the lines but trying to work out what lies between them. There are some interesting proposals but, in terms of the bigger picture, there is no talk here of fundamentally changing the MiFID settlement or the rest of the post financial crisis package of measures. There is little call in the City for this and most of the current law reflects international commitments.”

Updated

Shares in UK banks are a little higher this morning.

NatWest are up 0.9%, while Lloyds Banking Group are 0.55% higher and Virgin Money and Barclays have both gained 0.4%.

UK Treasury to reform short selling regulation

The UK is to reform the regulations on the short selling of shares listed on UK market – the practice of borrowing shares to sell them, with the goal of buying them back cheaper in future.

The current regulations were introduced by the EU (and put onto the UK statute book after Brexit), and include a ban on ‘naked short selling’ – selling short shares without borrowing them first.

Naked short selling is controversial, as speculators could use it to drive down a company’s share price. But advocates argue it helps with ‘price discovery’ – showing if a company is overvalued.

The Treasury says the government will repeal the current regulation and replace it with “a regulatory regime tailored to UK markets, supporting market integrity and bolstering the competitiveness of UK financial markets”.

It is launching a Call for Evidence, seeking views on how to reform the regulation of the practice of short selling, as it repeals and replaces retained EU law in financial services. This consultation closes on the end of 4 March next year (detail are here).

Jeremy Hunt’s major reform package for the UK’s financial sector is something to be “excited” about, the policy chairman at the City of London Corporation has said.

Chris Hayward denied that the move represents a regulatory “race to the bottom”, echoing Andrew Griffith’s point overnight.

“This is not about deregulation, this is about growth,” he told BBC Radio 4’s Today programme.

“We need the help of good growth and good regulation at the same time, they are two sides of the same coin.

“It’s not a race to the bottom, in my view, it’s a chance to actually grow our economy and I think we should be very excited about it. It’s positive news for financial services.”

Jeremy Hunt is pitching today’s reforms as a bonfire of EU regulations to boost the City, by creating an “agile and home-grown regulatory regime”.

But, as Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown points out, London’s financial sector has struggled since Brexit.

London’s financial reputation has been severely held back since Brexit, right at a time when the ‘powers that be’ have tried to encourage investment and growth in a big way.

Sadly, the allure simply isn’t there, with many of the UK’s brightest companies being snapped up by overseas investors, and London losing its top share-dealing status.

It’s clear the government is going for growth, but it must strike the right balance between “stoking the engines of growth in what has become a tepid environment”, and not slashing standards too far, Lund-Yates adds.

FCA fines Santander UK £107.7m for repeated anti-money laundering failures

In other banking news, Santander UK has been fined over £107m by the FCA for failing to properly enforce anti-money laundering (AML) controls.

The FCA penalised Santander for operating ineffective systems to adequately verify the information provided by customers about the business they would be doing.

The bank also failed to properly monitor the money customers had told them would be going through their accounts compared with what actually was being deposited, the FCA explains.

In one case, a new customer opened an account as a small translations business with expected monthly deposits of £5,000. Within six months it was receiving millions in deposits, and swiftly transferring the money to separate accounts.

The failings created a risk of ‘prolonged and severe’ money laundering, says Mark Steward, executive director of enforcement and market oversight at the FCA:

‘Santander’s poor management of their anti-money laundering systems and their inadequate attempts to address the problems created a prolonged and severe risk of money laundering and financial crime.

‘As part of our commitment to prevent and reduce financial crime, we continue to take action against firms which fail to operate proper anti-money laundering controls.’

Santander UK chief executive officer Mike Regnier has insisted the bank takes its responsibilities regarding financial crime “extremely seriously.”

Regnier says Santander has made changes since the problems were identified.

“We are very sorry for the historical anti-money laundering (AML) related controls issues in our Business Banking division between 2012-17 highlighted in the FCA’s findings.

“While we took action to address our AML issues once they were identified, we accept that our AML framework at the time should have been stronger.

“We have since made significant changes to address this by overhauling our financial crime technology, systems and processes.

“Today over 4,400 staff are focused on preventing financial crime and we continue to invest to meet our responsibilities and keep our customers and communities safe.”

Updated

Chancellor Jeremy Hunt has said the reforms outlined today will help secure the UK’s status as an open, dynamic and competitive financial services centre:

“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 homegrown regulatory regime that works in the interest of British people and our businesses.”

Here’s the full story:

Updated

The government has confirmed it plans to change the law to require the Bank of England’s Prudential Regulation Authority (PRA) to focus more on the financial sector’s global competitiveness, as part of today’s wider-ranging reforms.

Jeremy Hunt has also written to Nikhil Rathi, CEO of the Financial Conduct Authority, (the City regulator) outlining how the FCA’s remit will be widened to cover “the international competitiveness of the UK economy - including in particular the financial services sector - and its growth in the medium to long term”.

The existing Financial Services and Markets Act 2000 will be amended to give the FCA a secondary remit to “facilitate, subject to aligning with relevant international standards, the international competitiveness of the UK economy (including in particular the financial services sector)“.

The idea is to tailor financial services regulation to “bolster the competitiveness of the UK as a global financial centre and deliver better outcomes for consumers and businesses”.

Updated

Here’s ITV’s Joel Hills on the government’s financial reforms:

UK announces financial services reforms

The Treasury has announced its reforms to the financial services industry, which it says will taking forward its ambition for the UK to be “the world’s most innovative and competitive global financial centre.”

As expected, it includes reforming the ‘ring fencing’ regime. Those rules were introduced after the 2008 crisis, and force lenders to keep their investment banking arms seperate from their consumer banking division, to protect ordinary customers in the event of another financial crash.

It also includes a review into reforming the Senior Managers and Certification Regime, which held top bankers more responsible for conduct at their banks (again, intended to avoid the mistakes that led to the financial crisis).

Here’s the full list of the Edinburgh reforms, as we are to known them:

  • Reforming the Ring-Fencing Regime for Banks

  • Issuing new remit letters for the PRA and FCA with clear, targeted recommendations on growth and international competitiveness

  • Publishing the plan for repealing and reforming EU law using powers within the FSM Bill, building a smarter regulatory framework for the UK

  • Overhauling the UK’s regulation of prospectuses

  • Reforming the Securitisation Regulation

  • Repealing the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, and consulting on a new direction for retail disclosure

  • Intending to repeal EU legislation on the European Long-Term Investment Fund (ELTIF), reflecting that the new UK Long-Term Asset Fund (LTAF) provides a better fund structure for the UK market

  • Launching a Call for Evidence on reforming the Short Selling Regulation

  • Publishing a draft Statutory Instrument to demonstrate how the new powers being taken forward in the FSM Bill will be used to ensure that the FCA has sufficient rulemaking powers over its retained EU payments legislation

  • Consulting on removing burdensome customer information requirements set out in the Payment Accounts Regulations 2015

  • Welcoming the PRA consultation on removing rules for the capital deduction of certain non-performing exposures held by banks

  • Bringing forward secondary legislation to implement Wholesale Markets Review reforms

  • Establishing an Accelerated Settlement Taskforce

  • Committing to establish the independent Investment Research Review

  • Commencing a review into reforming the Senior Managers & Certification Regime in Q1 2023

  • Committing to having a regime for a UK consolidated tape in place by 2024

  • Consulting on issuing new guidance on Local Government Pension Scheme asset pooling

  • Increasing the pace of consolidation in Defined Contribution pension schemes

  • From April 2023, improving the tax rules for Real Estate Investment Trusts

  • Announcing changes to the Building Societies Act 1986

  • Delivering the outcomes of the Secondary Capital Raising Review

  • Consulting on reform to the VAT treatment of fund management

Updated

Analyst: risk that Treasury is acting myopically

There is a risk that today’s proposals forget the surge in risk-taking that led to the 2008 crisis, warns Victoria Scholar, head of investment at interactive investor:

“UK Chancellor Jeremy Hunt is a major sweep of reforms to the financial sector being described as the second ‘Big Bang’. The UK Treasury said it plans to reform short selling, consult on removing the rules for capital deduction at banks and reform securitisation. There is expected to be a sweep of more than 30 regulatory reforms as the UK desperately tries to maintain its position as a key global financial hub post Brexit.

Hunt is trying to prove to the financial sector that he is very much pro-business and in favour of the City of London as a key growth engine to the economy. However there is a risk that the Treasury is acting myopically, quickly forgetting the pre-2008 excessive risk taking that ultimately led to the global financial crisis and the introduction of new regulation to prevent another similar catastrophe.”

Introduction: City minister denies post-Brexit shake-up is 'race to bottom'

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Neary 15 years after the financial crisis, the UK government is to set out a package of post-Brexit reforms to boost its financial services industry today, which chancellor Jeremy Hunt claims will spur competition and growth.

Dubbed the “Edinburgh reforms”, the plans will outline how the government intends to “review, repeal and replace” rules introduced to avoid a repeat of the 2008 crash, to protect savers and the taxpayer.

Today, though, ministers argue these protections risk holding back London’s banks and insurers as they compete against overseas rivals.

Changes are expected to include relaxing ring-fencing capital rules to lighten the burden on smaller, retail-focused banks, and reviewing the senior managers regime, which held top bankers more accountable for their conduct and competence, and for transgressions on their watch.

Hunt is also expected to confirm City regulators will be given a new “secondary objective” of delivering growth and competitiveness, to run alongside their primary duty of protecting consumers and maintaining financial stability.

That “competitiveness and growth” objective is controversial – it risks undermining the reputation of Britain’s regulators, if they aren’t seen as focused on keeping the country’s financial institutions and markets safe and sound, and running well.

But City minister Andrew Griffith has denied that the govermment is embarking in a ‘race to the bottom’ by changing City reforms.

Griffith has told the Financial Times it is “absolutely the right time” to revisit the rules brought in after the 2008 crisis.

“Regulations were right for the time,” Griffith said, adding;

“The banking system, I’m assured, is in a much better position in terms of its balance sheet and its understanding of the liabilities that it is managing.”

Here’s our preview piece on Hunt’s reforms, in which my colleague Kalyeena Makortoff explains that Hunt is trying to rebrand what his predecessor Kwasi Kwarteng claimed would be a post-Brexit “Big Bang 2.0” for the City.

That was a reference to the sweeping deregulations of the 1980s under Margaret Thatcher’s administration, which were credited with elevating London as an international financial centre.

The agenda

  • 1.30pm GMT: US PPI producer prices index for November

  • 3pm GMT: University of Michigan’s survey of US consumer sentiment

Updated

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