With Edinburgh Reforms, UK financial services enter a new era

By Puja Sharma

To replace EU regulation and cut red tape, the Government has launched several major reforms to the financial sector. A review of accountability rules for bankers and easing capital requirements for smaller lenders are part of the “Edinburgh Reforms,” according to Chancellor Jeremy Hunt.

Hunt claims the package of regulatory reforms will “turbocharge” growth across towns and cities in the UK. The moves will loosen banking rules introduced after the 2008 financial crisis, which saw some UK banks face potential collapse.

Since Brexit, Amsterdam has become the biggest trading hub in Europe, overtaking London as the City of London’s biggest trading hub. As part of the shake-up announced on Friday, the Chancellor will make “substantial legislative progress” next year to repeal and replace the Solvency II directive, which, according to the Treasury, is expected to unlock more than £100 billion in private investment.

The UK prospectus regime will also be revised to support stock market listings and capital raises, as well as real estate investment trust regulations and investment research provisions. In his message, the Chancellor stated, “We are committed to ensuring that the UK is among the world’s most open, dynamic, and competitive markets for financial services.”.

“The Edinburgh Reforms take advantage of our Brexit freedoms to create a homegrown regulatory framework that works in the interests of our businesses and people. And we will go further – delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences.”

The Chancellor has also confirmed the Government will relax ringfencing rules intended to separate risky investment banking from retail operations. Mr. Hunt also said that City regulators, such as the Financial Conduct Authority (FCA), will be given a “secondary objective” to deliver growth and competitiveness, alongside ensuring stability and security for businesses and consumers.

The policy chairman at the City of London Corporation said major reform of the UK’s financial sector is something to be “excited” about.

Following the UK government’s plans for a major overhaul of financial regulation across the BFS industry to “turbocharge” the economy, Andy Nelson, Head of Banking and Financial Markets at NTT DATA UK&I commented on the need for technology to retain customers at times of increased risk, “The 30-point package of policy changes for the UK’s banking and financial services sector could just be the boost the market needs, during a challenging time for the UK economy. However, such wide-ranging changes come with a fair bit of added risk,” he said.

“To negate these potential risks, banks and financial institutions must consider the use of technology to evolve their offerings and to build in the flexibility to adapt to the changing market. The role of data and advanced analytics in underpinning these risk mitigations will be a key differentiator for banks and will enable them to retain their customers during this time of regulatory change.” Nelson added.