A tale of two Cities: Labour’s vision for financial services seeks to balance stability and reform
Labour’s Shadow Chancellor Rachel Reeves and Shadow City Minister Tulip Siddiq this morning showcased ‘Financing Growth’ – the party’s long-awaited review of financial services – to over 400 private sector leaders at its annual business forum. The scale of the event is reflective of the extensive engagement that the Labour Treasury and Business teams have conducted with the private sector over the last few years. The advisory panel that fed into this review is made up of leading members of the industry, policy and regulatory spheres – it is clear that Labour officials have put in the hard yards in engaging with the City on this work.
That said, while there are some significant new policies announced in the document, many of the key areas of focus will not come as huge surprise to those who have monitored the Shadow Treasury team’s comments over recent months. This stays true to Reeves’ stated aim of providing stability and security with her proposals, avoiding any major upheaval in policy to promote investor confidence and growth.
Expected measures to foster ‘stability and security’
This continuity is offered in Labour’s policies around consumer protection and financial inclusion; its plans for supporting and promoting the UK’s fintech sector; and in leveraging green finance as a crucial part of their wider environmental initiatives.
Increasing levels of consumer financial protection – particularly the regulation of the Buy Now Pay Later (BNPL) sector – is an area which Labour has signposted for some time it will move quickly on should it win power. Labour has used the absence of regulation brought forward on BNPL as a stick to beat the government with over the last few years – as such, Siddiq and Reeves commit in the report to bring forward their ‘industry-approved plan for regulation’ quickly after the election.
The same is true of the proposals for the fintech sector. With Ron Kalifa on the advisory panel of this report, it is no surprise to see Labour seeking to build on many of the measures suggested by Kalifa in 2021 to increase the UK’s international competitiveness. These range from using its AI Strategy to encourage use-cases of the tech in financial services, to supporting the Joint Regulatory Oversight Committee (JROC) in delivering the next phase of Open Banking, and ‘working with regulators and industry’ on a new roadmap for Open Finance.
New announcements on regulation and savings have the potential to spiral
Whilst it is true that many of the policies set out in the report have been previously trailed, there are several new announcements that may have significant implications for businesses across the sector.
The first of these to highlight are a series of possible regulatory reviews and reforms in the name of ‘improving efficiency and promoting innovation’. Labour confirmed it will review how the entire range of City regulators operate in conjunction with one another, identifying areas of overlap and gaps in oversight. This will be supported by a major FCA ‘streamlining’ consultation with industry to align with the Consumer Duty, and a new Regulatory Innovation Office that will monitor performance, introduce new progress metrics and promote transparency. Clearly, a sector-wide review of regulatory mandates has the potential to be extremely impactful: inputting into these consultations and monitoring how the new watchdog shapes the industry-regulator dynamic will be critical for both established players and smaller innovators alike.
Another area of focus for Labour in the review is on measures to ‘reinvigorate’ capital markets and pensions – both from a consumer outcomes perspective and to channel more private capital into growth sectors of the economy. To this end, Labour today committed to undertaking a major review of the savings landscape, consulting across the whole industry and consumer group representatives to not only consider how the public can increase returns and be better protected, but also to encourage greater investment into UK-based assets. This was supplemented by the announcement of measures modeled on the French ‘Tibi’ scheme for Defined Contribution (DC) funds, who can opt-in to invest a proportion of their assets into UK growth assets.
While the exact scope of the review still needs to be clarified, it’s clear that like the current government, Labour recognises the potential value of private capital in generating the revenue it will need to achieve its policy priorities – Reeves speaks frequently about the ‘1:3 public-private investment ratio’ that she will aim for should she become Chancellor. It is clear Labour are exploring all possible policy levers it can pull in order to help achieve this.
Focus on diversity connects FS to the wider Labour policy platform
Finally, it would be remiss to not highlight the focus Labour has placed upon encouraging diversity in the UK’s financial services sector as part of this review – not only in the workforce itself but also geographically. Alongside introducing new diversity and inclusion guidance for the PRA and FCA to hold firms to account on their hiring pledges; and codifying two additional KPIs for the British Business Bank to channel investment into women and ethnic minority-led start-ups; Labour has placed a heavy emphasis on growing regional financial centers outside of London and Edinburgh. This leans on implementing the recommendations of both the Harrington Review into foreign investment and Labour’s own ‘Start-up, Scale-up’ – applying the same regional lens to the Labour FS agenda that exists across nearly all other aspects of the current party policy platform.
With this in mind, firms that are able to demonstrate how their work helps alleviate regional economic imbalances – avoiding mentioning the dreaded ‘levelling up’ – will be at an advantage when engaging with the Labour Treasury team on any variety of policy issues.
In sum, much of ‘Financing Growth’ was unsurprising by design – in keeping with the regulatory direction of travel in the sector and reflective of the many conversations Labour has had with those in the City over the last few years. However, there are several new policies contained in the report that, given their as-yet undefined scope and ambitious nature, have the potential to pose challenges for firms across the sector and significantly impact the public. Gaining more detail from Labour on these proposals, and shaping the policy development process where possible, will therefore be critical as we move closer to the next election.