Labour — what can the financial services sector expect now?

In January 2024, Labour set out six key statements of intent for financial services to build a strong and improved sector. As expected, the plan set out an overview but without going into much detail. Labour is taking a forward-looking approach in its review of the regulatory landscape, so we are expecting many existing strategies to continue, such as the reform of the Financial Services and Markets Act 2023, whilst Labour also looks to collaborate further with the sector in the future.

Labour expects to implement six priorities in the sector, and we summarise some of the ways they hope to achieve these:

1. Deliver inclusive growth of the UK’s financial services sector

• explore setting additional KPIs for the British Business Bank regional funds to ensure access to SME financing across all regions
• establish Skills England to develop talent pools in regional financial centres
• double the size of the more community orientated, co-operative and mutual financial services sector
• strengthen the SME bank referral scheme to support more businesses in securing financing from alternative non-bank sources
• increase the representation of women at all levels in the sector and widen the talent pool, therefore delivering better outcomes for businesses.

2. Enhance the international competitiveness of the UK’s financial services sector

• promote best practice in cross-sectoral regulatory coordination, including through data-sharing and integration of new technologies, and adapt oversight to accommodate innovative technologies and business models
• continue with the ring-fencing regime to protect financial stability, and support the work to align with the resolution regime so as to limit bureaucracy for banks but reinforcing the stability of our financial system
• recognise the value of the FCA’s Consumer Duty as outcomes-focused regulation which reduces harm to consumers and ensures that firms deliver fit for purpose and affordable products and services
• establish a new Regulatory Innovation Office to improve accountability and promote innovation in regulation across sectors, therefore promoting transparency on regulator performance
• support a streamlining of the FCA handbook and encourage industry to work with the FCA to identify rules which have been made redundant by Consumer Duty
• adopt a more pragmatic and cooperative approach to working with the EU in areas where it is mutually beneficial.

3. Reinforce consumer protection and financial inclusion

• reinforce consumer protection by taking a cohesive approach to fraud across government, law enforcement, regulators, financial services firms and tech companies, to tackle the whole system which enables fraud to occur currently
• continue to support work by the FCA and PSR to allow payment service providers flexibility to delay suspicious payments
• protect vital banking services and accelerate the roll out of at least 350 banking hubs to allow people to access banking services
• create a national financial inclusion strategy to grow financial literacy education in schools and colleges, and work out how to help the 3.9 million of digitally excluded individuals
• increase people’s financial resilience e.g. encourage longer term fixed rate mortgages and savings.

4. Lead the world in sustainable finance

• make the UK an international leader and collaborator in sustainable finance through its roles in G7, G20 etc
• deliver a world-leading green finance regulatory framework and evaluate a potential model for tracking green finance flows, to enhance the availability, consistency and reliability of sustainability related data, thus attracting investment to the UK
• partner with the sector to support “greening” the housing stock including expanding the offering of products and financing for retrofitting work.

5. Embrace innovation and fintech as the future of financial services

• acknowledge while there is a global race to be the country of choice for the growth of AI, consumer protection must come first when regulating new technology, so it will develop an AI strategy which also maintains an agile approach to regulation, therefore promoting growth
• build upon the early successes of Open Banking and continue to support the efforts of the Joint Regulatory Oversight Committee to ensure appropriate consumer protections are in place to deliver the potential for increased retail payment competition
• expand the system via Open Finance to consolidate data from mortgages, pensions, insurance etc and open up the potential for Open Finance to improve financial inclusion, support household saving and investment, and create a new pipeline of data to spur innovation, including personalised solutions for customers
• continue the Bank of England’s work to create a UK central bank digital currency.

6. Reinvigorate our capital markets

• review the current pensions and retirement savings landscape to evaluate the delivery of sustainable retirement incomes for individuals, working alongside industry and consumer groups
• enable greater consolidation across all pension and retirement saving schemes to permit schemes to have access, expertise, and risk profile, to increase their investments in long-term illiquid assets and deliver higher returns for savers
• empower the British Business Bank with a more ambitious and targeted remit, to enable the bank to plan for a longer time horizon, be more ambitious in setting strategy and KPIs, and provide certainty to investors and firms
• consider the potential for securitisation of ENABLE programmes to support more lending at scale by challenger banks and small business lenders to facilitate SME growth
• continuance of adoption of Solvency UK reforms which will unlock up to £100 billion in capital from insurers to invest in productive assets and working with the PRA to ensure that the vision for Solvency UK reforms is delivered in practice.

Conclusion

It is clear that Labour will be undertaking further work to assess what is needed to facilitate the increase of investment in the UK capital markets, and that it is committed to its engagement with industry to help shape policy ideas to ensure stability and growth.

It will also come as no surprise that Labour wish to deliver progress on diversity and inclusion in financial services to deliver better outcomes for businesses and that it will continue to work on the gender pay gap.

Prior to the election, Labour pledged if they won to add two new strands of priorities to British Business Bank around female led business and diversity strands. It will be interesting to see if they can break down the barriers to access to finance, continuing the positive work of the state owned bank.

Labour’s manifesto fiscal plan includes £855m towards investment into HMRC compliance activities with the addition of 5,000 staff. We would expect higher enforcement activity from HMRC following this investment albeit gradually over time. This will affect those companies potentially under the radar with liabilities amassing in the retail, leisure and hospitality space, therefore companies are advised to seek advice early to engage with stakeholders to address liquidity issues.

We expect that the regulators will remain independent in the sector and look forward to seeing the new government working closely with the regulators to establish a good working relationship. Any updating and simplification of the FCA Handbook will no doubt be welcome by many but is likely to take some time to make sure it is done correctly.

Finally, we will need to wait to see how Labour develops its policies in the financial services sector now that Sir Keir Starmer has been elected, as we are all aware, not all pre-election pledges and commitments do become reality as time goes on, and things change in the ever evolving landscape of politics, particularly with a new government.