Rishi Sunak has moved to weaken regulation of financial services brought in after the 2008 crash amid fears he is aiming to make London into a post-Brexit “Singapore-on-Thames” pushed by Tory donors.
The chancellor is bringing forward a new financial services and markets bill as part of the Queen’s speech with the aim of “cutting red tape in the financial sector”.
Under the changes, Sunak is planning to get rid of the EU regulatory regime covering the City of London and replace it with a UK-specific one.
The Queen’s speech insisted that “high standards” in financial services regulation will be maintained but the move stoked fears that Sunak is looking to rip up rules governing the banks, insurers, traders and others in the City in order to boost the economy.
Tory and leave donors have long been pushing for a move towards a lighter touch regulatory regime, sometimes referred to as the Singapore-on-Thames model.
Sunak earlier this year said that Brexit would lead to a “big bang 2.0” in reference to the period of financial services deregulation in the 1980s, which was later blamed for paving the way to the financial crash of 2008.
The description of the bill does not go into details about which elements of regulation will be scrapped or changed, but it does mention reform of rules around the UK’s capital markets “to promote investment”. This appears to take aim at MIFID II – tough regulations brought in by the EU after the 2008 crash to improve markets.
The government claims that removing restrictions on trading in wholesale markets will benefit about 3,200 investment firms in the UK “who are currently prevented from getting the best price for investors”.
Ministers are also looking at Solvency II regulation of the UK insurance sector, which could aim to release investment by reducing capital buffers and risk metrics for insurance and pension funds.
The legislation is also designed to facilitate greater trading of cryptocurrencies, which regulators have warned must be tightly controlled to prevent people losing their savings.
In a further deregulatory move, Sunak plans to update the objectives of the financial services regulators – the Prudential Regulation Authority and the Financial Conduct Authority – to “ensure a greater focus on growth and international competitiveness”. Their aims at the moment are to protect and enhance the integrity of the UK financial system as well as promoting competition in the interests of consumers – rather than the economy overall.
Another element of the bill will be introducing additional protections for those investing in financial products to make it safer and support the victims of scams.
Civil society groups warned that the legislation overall could “erode the ability of regulators to act in the public interest and catalyse a global ‘race to the bottom’ on social and environmental standards”.
Fran Boait, executive director of Positive Money, a campaign group for a fair economy set up in the wake of the financial crisis, said: “Plans to force regulators to promote the ‘growth and international competitiveness’ of the City of London is at odds with such efforts to increase financial inclusion, as well as the government’s climate and ‘levelling up’ goals.
“A focus on the growth and ‘competitiveness’ of the finance sector is what led us down the path to the 2008 financial crisis, and will mean regulators prioritising banks’ profits over the public’s access to financial services, as well as the wider health of the economy.”
The move was welcomed by the financial services industry. UK Finance, the lobbying body for the industry, said it “provides the opportunity to tailor the UK’s regulatory framework and so create a more competitive financial services sector post-Brexit, supporting jobs and investment across the country”.
