Treasury written statement – made on 9th December 2022.
In the Autumn Statement, I set out the government's strategy for boosting growth by investing in our people, in the infrastructure that connects our country, by creating the right environment for business investment, and by supporting our world-leading financial services companies and innovators. Alongside this, I identified five growth sectors – one being financial services – for which the government will prioritise the review of retained EU law, to ensure we identify changes that will support these sectors to grow.
I am today setting out a bold collection of reforms taking forward the government’s vision for an open, sustainable, and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens. These reforms will create jobs, support businesses, and power growth across all four nations of the UK.
The UK is one of the world’s leading financial centres and our financial services sector is one of the engines of the UK’s economy. Financial and related professional services employ over 2.3 million people, two thirds of whom are outside of London, with hubs in Belfast, Birmingham, Cardiff, Edinburgh, Glasgow, Leeds, and Manchester. In 2021, the financial services sector contributed £173.6 billion to the UK economy, 8.3% of total economic output.
The announcements being made today build on the reform agenda the government is taking forward through the Financial Services and Markets (FSM) Bill. The government’s approach recognises and protects the foundations on which the UK’s success as a financial services hub is built: agility, consistently high regulatory standards, and openness. This approach will ensure that the sector benefits from dynamic and proportionate regulation, and that consumers and citizens benefit from high quality services, appropriate consumer protection, and a sector that embraces the latest technology.
I have set out below details of the measures being taken forward, which I look forward to delivering in close collaboration with our vibrant financial services sector.
A competitive marketplace promoting effective use of capital
Building a smarter regulatory framework for the UK
The government has today published its policy statement Building a smarter financial services framework for the UK. A copy will be deposited in the Library. This is an ambitious plan for repealing retained EU law in financial services and replacing it with a new framework tailored to the UK, embracing the new opportunities presented by our position outside the EU.
Our approach includes:
Updating banking regulation and the ring-fencing regime
The government will bring forward secondary legislation in 2023 to improve the functionality of the ring-fencing regime. These reforms, in response to the independent review on Ring-fencing and Proprietary Trading, will benefit customers, the financial services industry, and the economy, while maintaining appropriate financial stability safeguards. The government will also issue a public Call for Evidence in the first quarter of 2023 to review the practicalities of aligning the ring-fencing and resolution regimes.
The PRA intends to consult on removing rules for the capital deduction of certain non-performing exposures (NPEs) held by banks. This would allow the PRA to apply a judgement-led approach to address the adequacy of firms’ provisioning for NPEs, help to simplify the UK rulebook and avoid the unnecessary gold plating of prudential standards. Such an approach would be possible only because of our regulatory freedoms outside the EU.
The PRA intends to consult on removing rules for the capital deduction of certain non-performing exposures (NPEs) held by banks. This would allow the PRA to apply a judgement-led approach to address the adequacy of firms’ provisioning for NPEs, help to simplify the UK rulebook, and avoid the unnecessary gold plating of prudential standards. Such an approach would only be possible because of our regulatory freedoms outside the EU. The government will also legislate, when parliamentary time allows, to amend the Building Societies Act 1986 to give building societies in the UK greater flexibility to raise wholesale funds, enabling them to grow and compete on a more level playing field with retail banks, while retaining their mutual model. As part of this, the government will also modernise relevant corporate governance requirements in line with the Companies Act 2006.
Ensuring a regulatory focus on growth and competitiveness
The government is legislating through the FSM Bill to introduce new secondary objectives for the FCA and PRA to provide for a greater focus on growth and international competitiveness while maintaining their existing primary objectives. To further support this aim, I will today lay before Parliament new remit letters for the FCA and the PRA which will set clear, targeted recommendations for how the regulators should have regard to the government’s economic policy.
Separately, the government and regulators will separately commence a review of the Senior Managers & Certification Regime in Q1 2023. The government will launch a Call for Evidence to look at the legislative framework of the regime, and the FCA and PRA will review the regulatory framework. The government's Call for Evidence will be an information gathering exercise to garner views on the regime's effectiveness, scope and proportionality, and to seek views on potential improvements and reforms.
Wholesale markets reforms
The government is committed to strengthening the UK’s position as a world-leading wholesale capital markets centre, and is taking forward reforms to the Markets in Financial Instruments Directive (MiFID) framework through the Wholesale Markets Review. Measures in the FSM Bill deliver key elements of this. To further support this agenda, the government:
Unlocking investment to drive growth across the whole economy
The UK’s financial services sector is an engine for growth across all four nations of the UK. The government is therefore bringing forward measures that will unleash the sector to drive investment and growth.
The government set out its plans to reform Solvency II at Autumn Statement, unlocking more than £100bn pounds for UK insurers to invest in long-term productive assets. HM Treasury is working with BEIS to deliver the recommendations made to government as part of the Secondary Capital Raising Review, and more broadly on reforms to corporate governance, to further enhance the attractiveness of UK public markets.
Going further, the government announces today that it:
A World Leader in Sustainable Finance
The government is ensuring that the financial system plays a major role in the delivery of the UK’s net-zero target, and is acting to secure the UK as the best place in the world for responsible and sustainable investment. The UK is the world’s premier financial centre for sustainable finance. The government is acting to ensure the UK retains global leadership in this rapidly growing sector. To deliver on its commitment align the financial services sector with Net Zero and to support the sector to unlock the necessary private financing, the government:
A sector at the forefront of technology and innovation
Our regulatory framework for financial services must support innovation and leadership in emerging areas of finance. To ensure the sector is prepared to embrace and facilitate the adoption of cutting-edge technologies, the government is:
Delivering for consumers and businesses
The government is committed to a financial services sector that supports the real economy and will continue to work with the regulators and industry to ensure that the sector is delivering for people and businesses across the UK. The government:
I am confident that the measures announced today, in tandem with the work taken forward through the FSM Bill, will deliver for this key growth sector, and the people and businesses that rely upon it.
Documents relating to all announcements can be found on GOV.UK www.gov.uk/government/collections/financial-services-the-edinburgh-reforms
 TheCityUK calculations based on Nomis, ‘Business register and employment survey: open access’, (May 2022), available at: https://www.nomisweb.co.uk/query/construct/components/date.asp?menuopt=13&subcomp=
 House of Commons Library ‘Financial services: contribution to the UK economy’: https://commonslibrary.parliament.uk/research-briefings/sn06193/