King’s Speech: changes afoot for UK’s financial services sector, further details awaited

The King’s speech last week outlined the Labour government’s legislative priorities. The Bank Resolution (Recapitalisation) Bill contains proposals for broadening the Bank of England’s response capabilities for bank failures. The bill focuses on smaller institutions, with proposals for enabling the Bank of England to request Financial Services Compensation Scheme (FSCS) funds for use in the resolution of failing small banks, and for the FSCS to recover such funds from the banking sector.

There are proposals in the National Wealth Fund (NWF) Bill for a NWF. This is to be the centrepiece of the new government’s ambitions for growth, greening the economy and making Britain a clean energy superpower. The government will align other institutions such as the UK Infrastructure Bank and British Business Bank under the NWF. In doing so government seeks to create a more coherent and extensive offering for business and private investors and, by deploying public capital, to grow the economy, open-up investment opportunities and generate further private sector investment.

There is a Pensions Scheme Bill in which government seeks to improve the outcomes for members of private-sector pensions and to drive consolidation in the market, and the Planning and Infrastructure Bill’s proposals for planning reforms. With these, government will be seeking to accelerate and streamline planning processes for building homes and to speed up the delivery of major infrastructure projects in line with its industrial, energy and transport strategies, such as for national grid upgrades and renewable energy.

Such bills begin to take forward the policy priorities Labour had already laid out for the sector.

In this blueprint document Labour emphasised the importance of a stable regulatory regime, aiming to use the financial sector as a driver for inclusive growth, and for transitioning the UK to net zero.

Labour’s economic approach, which it termed ‘securonomics,’ is described as one that seeks to provide a secure policy platform for growth, fosters innovation, entrepreneurship and long-term investment and supports UK citizens to bolster their financial security. Regulation that is stable and predictable; balancing financial stability, consumer protection and competitiveness; and championing financial inclusion will all be part of Labour’s approach.

Labour’s proposals for financial services hinge on six core ‘policy priorities’:  inclusive growth for the sector, international competitiveness, consumer protection and inclusion, sustainable finance developments, fintech and innovation, and capital markets.

According to its Financing Growth plans, Labour’s approach to regulation will be efficient, proportionate, incremental and predictable taking a forward-looking approach to improving regulatory efficiency. It will seek to leverage from the Financial Conduct Authority’s (FCA’s) and Prudential Regulation Authority’s (PRA’s) secondary objective of competitiveness and growth and emphasises partnership with the financial services sector and its regulators to drive change – for consumers, the UK’s net zero transition, and as a catalyst for developing innovations in technology and AI.

Labour’s priorities in these plans for financial services include the delivery of inclusive growth in the sector by expanding regional financial centres alongside London and Edinburgh and maximising the potential of the mutual sector. To do so Labour aims to double the co-operative and mutual financial services sector and build on reforms in the Financial Services and Markets Act (FSMA) 2023 enabling credit unions to offer more products.

Labour also plans to enhance the international competitiveness of the sector with a more ‘joined up’ and ‘innovation centred’ approach to regulation and supervision. Plans include aligning the FCA’s rule book with the consumer duty, using a call on industry to identify rules which the duty now renders superfluous, and enhancing international engagement by expanding on the UK’s agreements with international financial centres and seeking to build on the UK-EU financial Services MoU.

To reinforce consumer protection and financial inclusion, Labour’s plans include exploring new financial resilience models such as longer-term fixed rate mortgages, cross sectoral work on preventing fraud such as data sharing between tech companies, telecoms companies and financial firms, and supporting the work of regulators to allow payment service providers to delay suspicious payments, and working with regulators and industry on delayed payment dispute resolution processes for customers.

A national financial inclusion strategy is proposed, to be designed by a committee representing government, industry and regulators, to co-ordinate work across both public and private sectors, and with the Department of Education to increase financial education in schools and colleges. Labour is also proposing measures to regulate ‘buy now pay later’ schemes so consumers are better protected and to give providers in this part of the sector certainty. Labour plans to accelerate the roll out of at least 350 ‘banking hubs’, and to work with banks, bringing in new powers for the FCA should these be needed, so communities retain access to in person banking services.

Labour’s blueprint for the sector also contains plans to help position the UK as a global green finance hub. These include the development of a leading green finance regulatory framework which involves taking the UK Green Taxonomy forward with a clear completion timeframe, requiring financial institutions and FTSE 100 companies publish their carbon footprint and adopt credible transition plans, and seeking consultation by regulators and treasury on banks and insurers issuing covered bonds secured against green infrastructure. Labour also proposes working on a possible model for tracking green finance flows, exploring the potential for nature related finance and supporting home decarbonisation in partnership with the financial sector including affordable retrofitting products and green mortgages and by exploring innovations such as property-linked financing so retrofitting debt attaches to the property rather than to its owner.

The new government will also embrace innovation and fintech, seeking to progress open banking and open finance. This work is to include supporting the Joint Regulatory Oversight Committee setting out the roadmap for the next phase of open banking and seizing the potential for open finance to improve financial wellbeing, inclusion and innovation by building on the successes of open banking and consolidating data from a range of financial products – mortgages, insurance and more - and work with regulators and industry to develop an open finance roadmap.

Labour supports the Bank of England’s work on a possible central bank digital currency wanting its design to address privacy threats, financial inclusion and stability.  Labour also seeks to make the UK a leading global centre for securities tokenisation with applicable law and regulation and a possible pilot issue of tokenised gilts. Labour’s blueprint for the sector also flagged establishing a regulatory sandbox for innovative financial products aiming to reach underserved and excluded communities, and for the regulators to explore a ‘post-sandbox roadmap’ for supporting sandbox participants subsequently seeking authorisation to bring products to market.

Labour’s capital markets plans include reviewing pensions and retirements savings of all types across the sector, with industry and consumer groups, to assess whether the existing framework will deliver sustainable retirement incomes and make proposals for an approach beneficial both to pensioners and ‘UK PLC’. Simplifying the ISA landscape could increase retail investment in capital markets via stocks and shares ISAs and the Labour government also aims to boost growth capital investment via the British Business Bank which supports SME growth, and by creating a British version of the French ‘Tibi’ scheme for DC funds to opt into and invest a proportion of their assets in UK growth assets - venture capital, small cap growth equity and infrastructure. Labour also plans to work with the PRA on delivering the Solvency UK reforms to unlock capital from insurers for investment in British infrastructure and green industries, which Labour seeks to facilitate, including with its planning and grid reforms.

In addition to introducing such new legislation and reforming underperforming statutes - Labour’s plans single out the Consumer Credit Act and the Building Societies Act for modernising - the new government’s toolkit for change also includes powers recently introduced in FSMA 2023. Such powers include the requirement that the FCA and the PRA ‘have regard’ in rulemaking to matters relevant to making the rules in question treasury specifies in regulations, for treasury to require the FCA and the PRA to make rules, and for the FCA and PRA to engage with parliamentary committees when consulting on rules.  It will be interesting to see how these powers are deployed in the context of Labour’s forthcoming financial services policy changes.

Co-written by Ann Zheng of Pinsent Masons.