Briefing

19 November 2024

The 2024 Mansion House speech and the future of UK financial services

On 14 November 2024, the UK’s Chancellor of the Exchequer, Rachel Reeves, gave her first Mansion House speech, in which she argued that regulatory changes to eliminate risk after the financial crisis have ‘gone too far’ and led to unintended consequences. She said the UK’s status as a global financial centre cannot be taken for granted, and she announced a package of reforms to ensure that status is maintained. In this client briefing, we summarise some highlights from the speech and related developments.

Focus on growth

In her speech, the Chancellor said the UK “has been regulating for risk, but not regulating for growth”. The government’s central mission is to grow the economy, and it sees financial services as having a fundamental role to play in delivering this growth mission. To support this, the government is committed to rebuilding relationships with the EU, as well as working closely with the USA and engaging with significant and fast-growing economies like India, China and the Gulf states.

It has also issued new recommendation and remit letters to the FCA, PRA, and FPC, with a focus on growth. The government is committed to working closely with the regulators to deliver on this, and the new letters will ensure that the government and Parliament can hold the regulators to account for their role in facilitating growth and competitiveness. The government has also issued a joint remit letter to the FCA and PSR focused on payments, as described in more detail below.

Financial Services Growth and Competitiveness Strategy

The government is developing the first ever Financial Services Growth and Competitiveness Strategy, to be published in Spring 2025, alongside the government’s Industrial Strategy and other sector plans. The Strategy will set out the government’s approach to the sector for the next 10 years and serve as the central guiding framework through which the government will try to achieve sustainable, inclusive growth for the sector and secure the UK’s ongoing competitiveness as an international financial centre. The strategy will focus on the key enablers to growth and competitiveness of the sector, as well as specific priority opportunities that the government has identified as offering the greatest growth potential.

The government has published a call for evidence to inform the development of this Strategy. The call for evidence closes on 12 December 2024. In the call for evidence, the government has identified five core policy pillars central to the sustainable growth of the sector.

1. Innovation and technology.

2. Regulatory environment.

3. Regional growth.

4. Skills and access to talent.

5. International partnerships and trade.

The government has provisionally identified the priority growth opportunities as:

• fintech;

• sustainable finance;

• capital markets (including retail investment);

• insurance and reinsurance markets; and

• asset management and wholesale services.

In addition to the strategy, the government will continue to focus on other priorities within financial services policy, including:

• increasing access to finance, to ensure that SMEs have the capital they need to grow and compete;

• doubling the size of the mutuals sector to help drive innovation and inclusive growth throughout the UK;

• addressing barriers to financial inclusion, to ensure that everyone has access to useful and affordable products that improve their financial resilience and allow them to fully participate in the economy;

• working with industry to roll-out 350 banking hubs over the parliament;

  tackling financial and economic crime, which will promote growth by ensuring consumers and businesses have trust in the financial service sector; and

• increasing representation of women in senior roles through HM Treasury’s Women in Finance Charter – which aims to harness the talents of women at all levels.

Sustainable finance

The government’s new Industrial Strategy is intended to drive long-term sustainable, inclusive and secure growth. The government published a Green Paper on 14 October 2024 setting out its vision for the Industrial Strategy, which marks net zero and clean energy industries as core priorities. Within this context, the government has set out its ambition for the UK to be the world leader in sustainable finance. This includes delivering a regulatory framework to support sustainable growth and enable the private sector to realise the opportunities of the transition.

The sustainable finance package announced at Mansion House includes:

• next steps on sustainability disclosures and transition plans;

• a consultation on the value and use cases of a UK Green Taxonomy;

• regulation of Environmental, Social, and Governance (ESG) ratings providers;

• principles for Voluntary Carbon and Nature Markets (VCNMs); and

• co-launching a new Transition Finance Council with the City of London Corporation.

In its remit letter to the FPC, the government has also reinstated sustainable finance as one of the government’s priorities which the FPC should support as part of its secondary objective.

Sustainability reporting standards: The government intends to consult on requiring economically significant companies to disclose information using future UK Sustainability Reporting Standards, which will be based on the internationally interoperable International Sustainability Standards Board (ISSB) Reporting Standards. (See our guide to global sustainability reporting standards.) The FCA will use these standards to consult on updated disclosure requirements for UK-listed companies.

Transition plans: The government will also consult in the first half of 2025 on how best to take forward the manifesto commitment on transition plans in support of its ambition to become the global hub for transition finance and ensure the UK's regulatory framework is growth-focused, internationally competitive and maintains the UK's status as a global financial hub.

UK Green Taxonomy: On 14 November the government published a consultation seeking views on whether a UK Green Taxonomy would be additional and complementary to existing sustainable finance policies, including in supporting market participants to make sustainable investment decisions, and the specific market and regulatory use cases which facilitate this. This will inform an assessment of the value of implementing a UK Taxonomy, and exactly how it could be targeted to ensure it is as effective as possible. The consultation closes on 6 February 2025.

ESG ratings: Regulation of the provision of ESG ratings is intended to increase transparency and investor confidence in ESG ratings, which provide an assessment of companies, funds or financial instruments and are becoming an increasingly important part of the market for sustainable finance. The previous government published a consultation on the regulation of ESG ratings providers on 30 March 2023. HM Treasury published a consultation response alongside a draft statutory instrument on 14 November. The consultation response sets out the details of the scope of the regulatory regime, including what activities will be captured. Work continues on other aspects such as transitional provisions, consequential amendments and market access routes for certain overseas providers. The government welcomes technical comments on the draft regulation by 14 January 2025, after which the government will finalise the legislation.

In its response, the FCA said it welcomed the government’s publication of their consultation response and the draft legislation. Once the legislation is finalised by the government next year, the FCA intends to consult on proposals for the future regulatory regime in 2025.

Transition finance: The Transition Finance Market Review report was published on 17 October 2024 and the government will be considering its recommendations over the coming months. The Review was focused on assessing how the UK can become the best place to raise transition capital, including how the UK can develop innovative financial products to unlock long-term capital. The government is delivering one of the key recommendations by co-launching the Transition Finance Council with the City of London Corporation. This will help build the UK's transition finance market to support higher emitters to finance genuine transitions towards net zero.

Voluntary Carbon and Nature Markets: The government sees a clear and appropriate role for the responsible use of high-integrity carbon and nature credits by companies or other organisations that wish to do so as part of science aligned climate and nature strategies. The government published a policy paper on 15 November 2025 setting out integrity principles for VCNMs. In early 2025, the government will consult on the proposed implementation of these principles into VCNMs and seek views on how they could be applied through guidance, standards and regulatory oversight.

National Payments Vision

The government has published its National Payments Vision, setting out its ambition for the sector to create a trusted, world-leading payments ecosystem delivered on next-generation technology, where consumers and businesses have a choice of payment methods to meet their needs. The Vision responds to the findings of the independent Future of Payments Review 2023, led by Joe Garner, and takes action to address key issues across the landscape.

Alongside an articulation of this Vision, the government has announced a number of steps to achieve its goals. This includes a package of actions to cut through the current regulatory congestion facing the sector, and steering the approach to upgrades that are needed to the UK’s underlying payments infrastructure. The National Payments Vision outlines three key pillars designed to guide future activity: innovation, competition and security. In line with these pillars, the government has provided direction on priority initiatives in the retail payments arena, in particular Open Banking and tackling fraud.

In order to make the regulatory framework clear, predictable and proportionate, the government has outlined its priorities for UK payments through a joint remit letter to the FCA and PSR, providing recommendations relating to the government’s priorities for the UK’s payments sector. The key priorities highlighted in the payments remit letter are:

• strengthened coordination between authorities to address congestion in the regulatory landscape;

• supporting the development of Open Banking;

• ensuring high standards of consumer protection and reducing levels of fraud; and

• driving an agile and flexible approach to delivering the UK’s retail payments infrastructure needs, including work to examine and refresh the requirements for the UK’s retail infrastructure and the governance and funding arrangements needed to deliver this.

The Bank of England, PRA, FCA and PSR have committed to revise their existing MoU on cooperation in relation to the regulation of payment systems by Q2 2025. The government has asked the regulators to clearly outline actions taken to improve coordination and minimise overlaps, for example by clarifying regulatory responsibilities on specific issues.

To further build the effectiveness of payments fraud regulation, the FCA will lead work to manage existing overlaps between itself and the PSR. The government will commence the revocation of the payments authentication regulations relating to Strong Customer Authentication (SCA) in the Payment Services Regulations 2017, which will enable the FCA to incorporate aspects of the technical standards into its rules, allowing for more agile and outcomes-based rulemaking. In addition, the PSR has committed to an independent post implementation review of the authorised push payment fraud reimbursement rules, after 12 months, and the regulators will examine data sharing initiatives across the financial services sector. The government has also written to the technology and telecommunications sectors to call for demonstrable action to reduce the scale of incidents and losses from fraud taking place on their platforms and networks.

The government is establishing a Payments Vision Delivery Committee, a senior cross-authority group, chaired by HM Treasury and comprised of senior representatives of the Bank of England, FCA and PSR, which will be responsible for delivering a clear forward plan for the sector, in line with the Vision. The Committee will be supported by a Vision Engagement Group comprised of varied representatives from across the sector. Further detail on the Payments Vision Delivery Committee can be found in the accompanying Terms of Reference.

The Committee will, through work led by the Bank of England and PSR, clarify the upgrades required to the existing Faster Payments System, assess longer-term requirements for the UK’s retail payments infrastructure, and determine the appropriate funding and governance arrangements needed to deliver this, including proposals to reform Pay.UK. The Bank and PSR are expected to set out an approach no later than end Q2 2025. In particular, the government has asked the Bank and PSR to consider the broader context of regulatory congestion, which includes requirements for duplicate investment across competing infrastructure initiatives, and impacts on sector capacity.

The government considers that Open Banking should develop as an overlay service for the accessing of account data and initiation of account-to-account payments. The Vision clarifies regulatory responsibilities for Open Banking, transitioning away from current arrangements to the FCA acting as the UK’s regulator in the future, as envisaged by the Data (Use and Access) Bill. The Joint Regulatory Oversight Committee (JROC), which was established to oversee cross-authority work on the next phase of Open Banking, will be wound down at the earliest opportunity. The Data (Use and Access) Bill also includes measures to establish a statutory footing for digital verification services without creating a mandatory digital ID system.   

The Vision also sets out the government’s commitment to explore a potential retail Central Bank Digital Currency, the digital pound. The government will continue the design phase for the digital pound, in partnership with the Bank of England. This work will provide the evidence base to make a decision in the coming years on whether to launch a digital pound. Any decision to proceed would be accompanied by the introduction of primary legislation, which would guarantee users’ privacy and control of their money.

Finally, the government will continue to consider whether the Bank of England’s regulatory perimeter remains adequate for addressing risks to economic and financial stability.

In its response, the PSR says it welcomes the National Payments Vision. In light of the Vision’s direction on payments infrastructure, the PSR plans to consult on changing its obligations on Pay.UK in relation to the New Payments Architecture. The PSR will also shortly publish its proposed next steps on variable recurring payments, and a publication on the origination of fraud, including the role of social media, is planned for later this year. In addition, the PSR will shortly publish its mid-Strategy review, which will spell out how it intends to support delivery of the government’s Vision.

Digital Gilt Instrument

The Chancellor also announced that the government is launching a pilot to deliver a Digital Gilt Instrument (referred to as “DIGIT”), using distributed ledger technology (DLT), demonstrating the government’s commitment to innovation in the financial services sector. 

Advice Guidance Boundary Review

The Chancellor also flagged the importance of making sure consumers have access to financial advice and guidance. In December 2023, the government and the FCA published a policy paper on the Advice Guidance Boundary Review, setting out some preliminary proposals for closing the advice gap in order to enable consumers to get the help they want, at a time they need it, at prices they can afford. They included three proposals:

1. targeted support (a new form of support allowing authorised firms to provide suggestions that are appropriate to consumers with the same high-level characteristics);

2. simplified advice (a new form of advice that makes it easier for firms to provide affordable personal recommendations to consumers with more straightforward needs and smaller sums to invest); and

3. further clarifying the boundary (providing greater certainty for authorised firms on scenarios where they can provide support that does not constitute regulated advice).

The FCA published a feedback statement on 15 November 2024 setting out its updated approach to help people access financial and investment support. The FCA plans to consult on high-level proposals for targeted support for pension savers in December 2024, followed by rules for better support for consumers in retail investments and pensions in the first half of 2025.

Consumer Composite Investments

The government and FCA are also committed to replacing EU-inherited consumer disclosure regulation with a new framework tailored to UK markets and firms. The FCA said on 15 November that it will consult by the end of 2024 on a new product information framework for Consumer Composite Investments (CCIs) that will replace the EU-inherited Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Undertakings for Collective Investment in Transferable Securities (UCITS) disclosure requirements. The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements. The new retail disclosure regime is expected to be in place in H1 2025, subject to the FCA’s consultation process.

On 15 November, the FCA also published a joint statement with The Pensions Regulator (TPR) and the Information Commissioner’s Office (ICO), giving firms greater clarity on communications they can make to help pensions and retail investments customers, in line with the FCA Consumer Duty and TPR’s Code of Practice and Guidance.

MiFID II reforms

The government has published a policy paper setting out next steps for reforming the UK Markets in Financial Instruments Directive (MiFID II).

First, HM Treasury has committed to legislate to give the FCA fuller powers of direction in relation to the reporting of OTC positions in commodity derivatives. Applying lessons learned from the events in the nickel market in March 2022, this approach will help the FCA to ensure that exchanges receive the right transparency about OTC positions, proportionate to the risks associated with different markets. This is intended to enable exchanges to operate their position management responsibilities effectively, without introducing unnecessary burdens on firms. It will also enable the FCA to intervene where it considers that position presents a risk to market stability.

Second, using powers established by FSMA 2023, HM Treasury has committed to commence the revocation of firm-facing requirements in the Markets in Financial Instruments Regulation (MiFIR) that pertain to transaction reporting, and delegate the setting of a new regime to the FCA. This will enable the FCA to explore long-term solutions to the issues related to transaction reporting raised during the Wholesale Markets Review. The FCA published a discussion paper on 15 November 2024, seeking views on options to improve the UK transaction reporting regime. The deadline for comments is 14 February 2025.

Third, HM Treasury will revoke the firm-facing regulations within the MiFID Organisational Regulation so that they can be replaced in the FCA Handbook. It is the government’s view that delegating responsibility for setting these direct regulatory requirements to the regulators ensures that the regulators’ real-world, day-to-day experience of supervising financial services firms is central to the regulatory policymaking process. It also provides flexibility for the regulators to update standards efficiently in response to emerging market trends and risks.

All these changes require legislation. HM Treasury will liaise with the FCA and PRA to ensure that any revocations coincide with the FCA and PRA’s replacement rules and provide a smooth transition for firms.

Private Intermittent Securities and Capital Exchange System (PISCES)

PISCES is a new type of stock market for private company shares. It forms a key part of the government’s strategy to reinvigorate capital markets through pro-innovation and pro-growth policies. The government has published a consultation response summarising the feedback to its March 2024 consultation on PISCES and setting out how the government intends to design the regulatory framework for PISCES in light of the views received.

The government intends to proceed with PISCES and will legislate to set up PISCES in a sandbox and grant the FCA the necessary powers to support the implementation and operations of the sandbox. The government has published draft legislation to establish PISCES, as well as a policy note that provides commentary on the draft legislation. The legislation will establish the PISCES sandbox and, alongside FCA rules, will set the regulatory requirements for PISCES.

Over the five-year sandbox period, firms wishing to run a PISCES platform will need to seek approval from the FCA, and those involved in trading on a PISCES platform will be subject to modified UK regulation under the sandbox regime. The Treasury will use the evidence from the sandbox to decide how to legislate to make PISCES a permanent feature of the UK regulatory regime if PISCES is deemed successful.

The government’s proposal differs significantly from the proposal consulted on in one key aspect: the proposed market abuse regime. Following feedback, the PISCES regime will not include a public market style market abuse regime. This is a change to what was proposed in the consultation. Instead, the FCA will be given rule-making powers to create a new and bespoke disclosure regime for PISCES. Under this regime, disclosures and pre- and post-trade transparency must be shared with all investors participating in a PISCES trading event but will not be required to be made public.

As there is no market abuse regime, there will also not be transaction reporting requirements for PISCES. Again, this reflects a change from the initial proposal. The FCA will consider whether to set rules related to record-keeping to support their supervision of the market.

The government welcomes any technical comments on the draft SI by 9 January 2025. Subject to the technical feedback on the draft SI, the Treasury intends to introduce the PISCES legislation by May 2025.

The FCA will take into account both the responses to the Treasury’s consultation, as well as the views of the government set out in its response, when they consult in due course on their rules supporting these sandbox arrangements. Based on the feedback, the FCA will then finalise these rules before opening the PISCES sandbox for applications.

Senior Managers and Certification Regime (SMCR)

In her speech, the Chancellor said that post-financial crisis regulation had gone too far and cited the example of the SMCR. According to the Chancellor, the Treasury, the FCA and the PRA will shortly publish the outcomes of their review of the SMCR, in which the government will commit to consult on replacing the current Certification Regime, which applies to staff below senior management level, with a more proportionate approach that reduces costs so that businesses are freed up to focus on growth.   

The government also supports the PRA’s intention to consult on reducing the length of pay deferrals, in order to help firms attract and retain talent.

Financial Ombudsman Service (FOS)

The Chancellor also said the FOS framework will be modernised so that it continues to play a vital role for consumers to get redress while giving clearer expectations around its decisions for consumers and for financial services firms. On 15 November, the FCA and FOS published a joint call for input seeking views on how to modernise the redress system, so it better serves consumers and provides greater stability for firms to invest and innovate.

Among other things, the FCA is seeking feedback on the problems that mass redress events and the redress scheme in general cause firms, consumers and their representatives, as well as what changes the FCA could make to the redress framework to enable it to better identify and manage mass redress events to ensure better outcomes for consumers, firms and the market.

The deadline for comments is 30 January 2025. The FCA will summarise the responses and publish next steps in the first half of 2025.

The FCA and FOS have also updated their Memorandum of Understanding to improve how they work together on important issues.

Mutual and co-operative sector

The government recognises the role of the mutual and co-operative sector in driving inclusive growth across the country. To support this, the government has already laid legislation to modernise the Building Societies Act 1986 and continued funding the Law Commission’s independent reviews of the laws governing co-operatives, community benefit societies, mutual insurers, and friendly societies. 

Under the Credit Unions Act 1979, credit union members must have specific common bonds between them. These are the links and common communities between members. The government has launched a call for evidence seeking views on the merits of and considerations for changing parts of the common bond requirement, in order to help credit unions grow sustainably. The call for evidence closes on 6 March 2025. Following the call for evidence, the government will publish a summary of responses and its proposed next steps, which may include a consultation on specific proposals.

The government has also published a letter from the Economic Secretary to the Treasury to the CEOs of the FCA and PRA requesting a report on the current mutuals landscape before the end of 2025. This report will aid the government and regulators’ consideration of how best to support the mutuals sector to drive inclusive growth across the UK.

The Chancellor also announced the establishment of a new industry-led Mutual and Co-operative Business Council. Under the leadership of the UK’s three largest mutuals, the Co-operative Group, Nationwide Building Society, Arla and Royal London, the new Council will co-ordinate the relationship with government to help deliver its manifesto pledge to double the size of the sector.

Insurance

The government has launched a consultation on the potential for a new approach to captive insurance companies, with the aim of supporting the competitiveness of the UK insurance sector. Captive insurance is a method of self-insurance and risk management. It is a fast-growing global market, but most captives are not established in the UK. The government has received representations from some parts of industry calling for a new approach for the regulation of captive insurance companies in the UK. The consultation closes on 7 February 2025. The government will carefully consider the responses and engage closely with the PRA and FCA before deciding on next steps.

The government will also consider what steps it might take to help further improve the UK’s Insurance Linked Securities offering, building on the PRA’s ongoing reforms to the UK regime. The PRA launched a consultation on 15 November 2024 on proposed changes to the regulatory framework for UK Insurance Special Purpose Vehicles (UK ISPVs), which issue Insurance Linked Securities. ISPVs are used by (re)insurers as an alternative to traditional reinsurance methods. The consultation closes on 14 February 2025. The PRA proposes that the implementation date for the changes resulting from the consultation would be mid-2025.

Pensions

The government has also published the interim report of the pensions investment review, which was launched by the Chancellor in July 2024. It puts forward proposals to legislate for a minimum size and maximum number of defined contribution (DC) pension scheme default funds, and to legislate to require for the 86 administering authorities of Local Government Pension Schemes (LGPS) in England and Wales to consolidate their assets into fewer, larger pools of capital. This is intended to set the DC workplace market and the LGPS onto a path of fewer, larger funds, which are better positioned to invest in productive assets, more able to deliver greater returns for members of DC schemes and give greater value for local taxpayers.

The report is accompanied by the publication of two consultations for the development of these proposals and an analytical publication on investment supporting the announcement. The final report will be published in Spring 2025, and the government will legislate where needed in a new Pension Schemes Bill next year. 

These ‘megafunds’ mirror set-ups in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential. In a press release, the government says the changes could unlock around £80bn of investment for infrastructure projects and businesses, and the LGPS changes will free up money for local public services in the long-term and secure more than £20bn for investment in local communities.

Conclusion

The Chancellor’s Mansion House speech outlined an ambitious vision for the UK’s financial services sector, emphasising its central role in her growth objective. The speech was accompanied by a flurry of consultations, calls for input and other publications providing more substance to the vision. One of the most interesting elements of this vision is the emphasis on regulators regulating for growth rather than risk. When viewed alongside the likely deregulatory agenda of a Trump White House, does this mean we are about to see a significant rolling back of regulation in pursuit of growth and international competitiveness?  If so, the real question is whether this will sow the seeds for future growth and prosperity or the next financial crisis.