Reforms to ringfencing rules for banks, curtailing the FCA’s consumer duty rules, curbing the powers of the Financial Ombudsman Service and allowing banks to offer mortgages to more low-income applicants were some of the key changes confirmed by UK chancellor Rachel Reeves during her much anticipated Mansion House speech on Tuesday.

Dubbed as “the Leeds reforms“, the changes are aimed at making the UK “the number one destination for financial services businesses by 2035.” The chancellor also once again called on the country’s regulators to abandon a risk-based approach to regulation that is stopping investment and economic growth.

In an article for the Financial Times, Reeves said: “For too long the ambitions of our economy have been held back by an unpredictable regulatory system that has a disproportionate attitude towards risk.”

She accepted that the regulatory protections that were put in place after the 2008 financial crisis were the right thing to do, but added that “more than a decade on, the pendulum has swung too far in the opposite direction, with an excessive focus across our economy on stamping out risk entirely.”

The announcement came on the same day the FCA, the UK’s top financial regulator, announced a number of reforms aimed at supporting the government’s economic growth agenda.

Key changes included lowering costs for businesses raising capital, streamlining the Senior Managers & Certification Regime (SM&CR), modernizing the financial redress system to help prevent it becoming overwhelmed, and speeding up processes for firms and individuals seeking authorization.

Key announcements

The Financial Services Growth and Competitiveness Strategy, announced by the Chancellor, is regarded by the government as “the most wide-ranging package of reforms to financial services regulation in more than a decade.” Key elements of the strategy include:

• Support for the Bank of England’s decision to raise the asset threshold for MREL requirements to between £25 billion and £40 billion ($33.5 billion and $53.6 billion), as it will help challenger banks find a foothold in the UK market.
• On Basel 3.1, implementing lower capital requirements for domestically focused banks from January 2027, while preserving flexibility on our approach for international banks, to ensure the UK always remains competitive while aligning with international standards.
• Reforms to ringfencing regimes to boost growth, but retaining the aspects of the regime that support financial stability and protect consumer deposits.
• Support for recent changes to the ‘loan-to-income limit’ on mortgage lending, meaning tens of thousands more people could be able to get a mortgage in the next year alone.
• Confirmation that Long-Term Asset Funds can be included in stocks and shares ISAs, allowing long-term ISA investors to benefit from this innovative product.
• The creation of Defined Contribution and Local Government Pension Scheme megafunds, meaning larger and more powerful pots of funding will be invested productively across the country.
• Proposal to limit for 10 years for claims to the Financial Ombudsman Service in order to speed up the time it takes for consumers to get redress for their complaints.
• FCA to assess the impact of the Consumer Duty and whether it unduly effects wholesale activity.
• Streamlining the Senior Managers and Certification Regime, reducing the burdens it imposes on firms by 50%.
• Introducing a new competitive framework for captive insurance.
• A decision not to pursue a green taxonomy for sustainable finance, but instead work with regulators through the Transition Finance Council to capitalize on the £200 billion ($268 billion) opportunity of the global transition to net zero.
• PRA and FCA are launching a scale-up unit to support innovative firms to grow in the UK.
• Announcing the Office for Investment’s new concierge service. which will provide tailored assistance to companies considering setting up and expanding in the UK.

The chancellor also hailed the recently announced changes to rules around financial advice and guidance and added: “For too long, we have presented investment in too negative a light, quick to warn people of the risks, without giving proper weight to the benefits.”

But despite pledges of economic revival, there was a setback for the government as latest figures by the Office for National Statistics showed UK inflation rates had gone up to an 18-month high of 3.6% in June, the FT reported.

However, experts told the paper that, despite the setback, the Bank of England could still move ahead with plans to cut interest rates to support a struggling economy.

Rob Mason, Director of Regulatory Intelligence at Global Relay, said in reaction to the speech: “There’s a surprising change of tack here, and it contradicts the non-financial conduct extended scope. I’d ask if it was potentially seeking to place more reliance on that. Accountability and having appropriately qualified individuals who demonstrate integrity to oversee financial institutions seems to be less important than UK competitiveness and growth.

“Reeves says ‘ … risk can be good and it can be bad,’ but with behavior from the likes of Jes Staley and Crispin Odey, which took a long time to be identified and escalated, has the pendulum really ‘swung too far’?”