To the relief of most, one of the dreariest general election campaigns concluded on 4 July. An underwhelming proportion of the vote in an underwhelming turn-out delivered an overwhelming majority for the new Labour government. Now, despite their having failed to deliver on their first promise of winning the Euros for England, our thoughts must turn to what this development is likely to mean for our industry.
In contrast to most policy areas, Labour has actually been quite detailed on its plans for financial services. It published Financing Growth: Labour’s plan for financial services earlier in the year. This included some encouraging passages such as: “We will unashamedly champion our financial services sector as one of the UK’s greatest assets. Our history as an innovating, industrious, trading nation was built on the foundations of a strong financial sector. The same can be true of our future.” Not always the sentiment under the preceding leadership.
Above all, what is to be welcomed in the proposals is there is no suggestion Labour will seek to step back from the genuine progress we have made in the last few years. The Financial Services and Markets Act 2023 (FSMA) – which restored on objective for the regulators to facilitate international competitiveness and economic growth – was a welcome step forward.
Labour has international competitiveness as one of its six priority policies for financial services. Very encouraging.
The new objective has already had an impact on Financial Conduct Authority (FCA). It has, finally, provided written confirmation that its conduct rules do not apply to distribution services delivered outside UK. This has ended an unnecessary process whereby firms in London took steps to try to second guess advice that had been given down the distribution chain for fear of being held accountable for it. That added cost and decreased our competitiveness. No longer.
We have also had advanced talks with FCA about rationalising its multiple definitions of “consumer”. This would be the foundation of it developing a more proportionate supervisory approach for those firms, such as LIIBA members, who do not primarily deal with consumers. We should sit clearly outside the scope of such initiatives as Consumer Duty and fair value assessments which, ironically, deliver precious little value for sophisticated corporate clients. The Discussion Paper FCA has just published on this will take this debate forward.
The new government’s commitment to keep up this pressure on FCA is important. And it needs to remain alert. Because, despite signs of more positive behaviour from FCA, it does have its relapses. The proposed change to the enforcement process to allow FCA to “name and shame” firms under investigation – even when 65% of current investigations conclude there is no case to answer – would be a retrograde step.
It would make potential investors into UK think more than twice before proceeding. So, the regulators will still need to be held to account. Which is one of the roles of the proposed new Regulatory Innovation Office (RIO) – a concept we lobbied for in the run up the FSMA being passed.
In terms of domestic financial services policy, the new government seems to be aiming for a pleasing steady as it goes with a few additions here and there approach. But it is in terms of our relations with European Union where we are optimistic that the incoming regime will make most difference.
Currently LIIBA members deliver services to EU clients through an EU-located subsidiary which has a branch in London. In some of the debates around the EU Retail Investment Strategy, amendments to Insurance Distribution Directive (IDD) are being proposed that would bring an end to this model. Whilst the only losers from this would be EU corporate clients, this is not an argument that gets you very far in Brussels.
These amendments are not being driven by logic but by politics. So, the installation of a friendlier-looking administration in Downing Street could make a significant difference. Especially as Rachel Reeves confirmed during the campaign that a Labour government would seek better trade terms with EU for financial services. I have already written to her and suggested I come round for a chat.
There will be other aspects of government policy that will impact us, of course. We are, after all, employers. And, given the perilous state of the national coffers, we will need to be vigilant in making the case against rises in Insurance Premium Tax.
But, in terms of its central policies for our sector, I think there are grounds to be cautiously optimistic about the likely impact of Labour in power. This country is in desperate need of accelerated economic growth – something which is at the heart of Labour’s mission-based approach to government. If that is to be delivered through an invigorated financial services sector, that should be something we can all get behind. See you back here in 2029 for the debrief.
