Introduction to the Leeds Reforms and Growth Strategy
The UK government has unveiled ambitious plans to make the UK the number one destination for financial services businesses by 2035. This goal is both brave and encouraging, considering the scale of regulatory changes that need to be implemented within the next decade. The government’s aim is to adopt a holistic and incremental approach, identifying areas for a targeted reduction in burdens without an uncontrolled bonfire of regulation.
Ambition and Scale of the Reforms
The level of ambition is encouraging, as is the willingness of the government and regulators to reconsider areas where there were previously some fairly entrenched views. For example, the government is reviewing research unbundling rules and the scope of the Senior Managers and Certification Regime. This willingness to reconsider existing regulations is a significant step towards creating a more favorable business environment.
A Holistic Approach to Regulation
The Chancellor’s aim is to adopt a holistic approach, identifying areas for a targeted reduction in burdens without an uncontrolled bonfire of regulation. While there is no single policy announcement that stands out as a "game-changer," the overall cumulative effect of these changes is expected to bring about the necessary gains in efficiency and competitiveness. This approach is more manageable from an implementation perspective and is a more credible overall strategy.
Risks and Challenges
However, there are clear risks around the ability of the government and regulators to deliver the advertised reforms. The announcements consistently refer to the need for the government to legislate to create the correct statutory framework to support various changes. This raises potential questions as to whether there will be sufficient parliamentary time to pass the relevant legislation and whether the government can count on the support of backbench MPs to ensure the smooth passage of bills.
Comparison with EU and US Regulations
The UK’s approach to financial regulation compares favorably to the EU’s equivalent review of financial regulatory burdens. The UK’s approach involves concrete proposals and appears more advanced than the wide-ranging but currently amorphous exercise led by the European Commission. However, both the UK and the EU look unable to compete with the fast-paced slashing of regulation in the US being undertaken by the Trump administration.
Next Steps and Consultations
There will need to be consultations before many of the proposed changes can be made. Experience suggests that this can lead to substantial amendments to the original proposals, as well as protracted delays and uncertainty over implementation timelines. Given the range of changes that firms may need to implement, clarity over the timing and expected content of final rules will be critical.
Omissions and Areas for Further Reform
Fundamentally, though, it may be what is not in the Leeds Reforms or Growth Strategy that could ultimately derail the dream of sustained growth in the UK financial services sector. While the regulatory environment is clearly a critical piece of the larger puzzle, the aim of attracting inward foreign investment and drawing talent to the UK is inherently sensitive to the UK tax regime. The government will need to address concerns about the tax treatment of non-domiciled individuals and increased employment-related taxes.
Conclusion
Our overall sense is that the Leeds Reforms and the Growth Strategy are a very encouraging start, but the scale of the task facing the UK government and regulators is daunting. Legislators, regulators, and the industry will need to remain in close dialogue over the next few years to realize the full benefits of these reforms and to ensure that the UK financial markets are fit for the coming decades. Given the UK’s deep financial services expertise and track record of innovation, we are optimistic that the industry will seize this latest opportunity.
