UK finance firms seek 'bold' reforms to counter Wall St ascendancy

Van Lanschot Kempen NV

13/11/2024 13:08

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      Reeves to address City in milestone speech on Thursday
    

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      Investment, stock market expansion critical to economic
growth
    

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      Sector emboldened by reform but faces Wall Street
challenge
    

  
    By Sinead Cruise and Carolyn Cohn
       LONDON, Nov 13 (Reuters) - Britain's finance sector is
counting on policymakers to deliver a rulebook revamp that
prioritises growth and stops business slipping away to global
rivals, amid fresh challenges to London's financial superpower
status.
    UK finance minister Rachel Reeves is giving her first
Mansion House speech to leaders of the City on Thursday and is
expected to outline the role the left-leaning Labour government
wants them to play to help increase national prosperity.
    But those attending the event are just as eager to hear how
she might bolster the industry's prospects before a likely boom
on Wall Street when President-elect Donald Trump returns to
power.
    Pressure is mounting after Trump vowed to "liberate" the
U.S. economy and financial sector by slashing regulations and
restructuring federal agencies.
    Samuel Gregg, political economist at the American Institute
for Economic Research, said the sector in Britain needed to
respond fast.
    UK finance firms "should be using the second Trump
presidency as an opportunity to tell government that financial
deregulation and lowering corporate tax rates can be avoided no
longer," he said.
    Reeves' predecessor and officials at the Bank of England
have already flexed post-Brexit freedoms to tailor financial
rules, beginning with the Edinburgh Reforms package in 2022.
    More recent tweaks to Basel global bank capital regulation
and proposals to slash deferral periods on bonus payouts have
also been interpreted as signs of increased ambition to diverge
from the EU.
    Britain leapfrogged the EU with its commitment to a 2027
rollout of shorter settlement cycles in securities trading,
after the United States, Canada and Mexico made the reform
earlier this year.
    
    QUID PRO QUO
    Before Labour's landslide summer election win, Reeves, a
former Bank of England economist, said she would "unashamedly
champion" the UK's financial sector. 
    Her government needs the industry's tax receipts, which
totalled 110.2 billion pounds ($140 billion) in 2023, equivalent
to more than half the UK health budget, a study commissioned by
the City of London Corporation and TheCityUK showed.
        In the biggest revenue-raising budget for a generation
last month, Reeves introduced a smaller than expected rise in
tax on the private equity performance fees and resisted pressure
to hike a tax on profits made by banks.
    "UK policymakers have a real opportunity to move the UK in a
different direction," said Monique Melis, Kroll's Global Head of
Financial Services Compliance and Regulation.
    Building closer ties to the Middle East, Asia-Pacific,
Africa and the United States could give the UK "a real edge in
the future," she said.
    But staying ahead of competitors who have their own plans to
cash in on innovations like green finance, digital currencies
and artificial intelligence will not be easy.
    Kate Dawson, sector lead of capital markets at KPMG UK's
Regulatory Insight Centre, said some EU rules will still
encumber UK firms and the bloc's push for 'strategic autonomy'
bodes poorly for UK firms seeking access to EU markets.
     "The EU is introducing rules that will have
extra-territorial impacts," she said, flagging examples like the
Corporate Sustainability Reporting Directive, the Corporate
Sustainability Due Diligence Directive and the EU AI Act.
    
    OUTDATED FRAMEWORK
    A report published last month by think-tank New Financial
suggested UK banking, finance and capital markets have declined
in relative terms in the past decade compared with international
markets across nearly 60 metrics of value and activity.
    The think tank said Britain's regulatory framework, crafted
after the 2008-9 financial crisis, was outdated, over-complex
and lacking vision, and that rules need to encourage more risk
taking, not less.
    "I hope Rachel Reeves is bold and uses the opportunity to
look at our overall approach to regulation and risk in this
country," David Postings, Chief Executive of trade body UK
Finance, said.
    Reeves is expected to call for a reboot of the Financial
Ombudsman Service to boost consumer trust in financial services
as the industry braces for a possible multi-billion pound
consumer redress bill linked to motor finance commissions.
    She is also likely to outline significant pension industry
reforms to turbo-charge economic growth, after announcing a
review of the pensions system in July.
    This could include consolidating assets in the 360 billion
pound Local Government Pensions Scheme into a number of larger
investment pools, a model which has proved successful elsewhere.
    Reeves could also reboot a consultation from the previous
government to make it easier for companies to extract surpluses
from fully-funded defined benefit pension schemes, potentially
providing more capital for companies and pensioners to invest in
public and private UK companies, housing and infrastructure.
    Nikesh Patel, Head of Client Solutions UK at Van Lanschot
Kempen said such schemes could collectively amass as much as 1
trillion pounds of firepower over the next 10 years.

($1 = 0.7844 pounds)

 (Editing by Christina Fincher)
 ((sinead.cruise@thomsonreuters.com; 020 7513 5026; Reuters
Messaging: sinead.cruise.thomsonreuters.com@reuters.net))