UK Eases Finance Sector Rules To Boost Post-Brexit Investment

The UK government has unveiled a set of proposals aimed at easing regulatory requirements for the banking and insurance sectors as part of ongoing efforts to support the country's financial industry in the wake of Brexit. 

The departure from the European Union has resulted in a partial disconnect between the UK's financial sector, accounting for approximately 12 per cent of the nation's economic output, and the EU. Industry leaders have been urging the government to expedite reforms to ensure the sector remains globally competitive.

Additionally, London, a key global financial hub, faces fierce competition from New York in terms of company listings. A recent survey indicated that Singapore is now closely rivaling London in global financial center rankings.

Building on the "Edinburgh Reforms" outlined in December, the finance ministry has initiated a public consultation on proposed secondary legislation designed to implement recommendations from a review led by Keith Skeoch, a former investment fund executive. One of the key proposals is to raise the threshold at which the "ring-fencing" rule applies to banks from £25 billion (USD 30 billion) to £35 billion.

The ring-fencing rule was introduced in January 2019 as a response to the costly taxpayer-funded bank bailouts during the global financial crisis. Its primary goal is to ensure the safety of deposits, even if riskier investment banking activities (outside the ring fence) incur losses. However, this regulation adds operational costs for banks.

UK financial services minister Andrew Griffith has stated that the proposed changes will make the rule more flexible and reduce the risk of unintended consequences. Griffith emphasised that these modifications would lead to better outcomes for banks and their customers, promote competition, enhance the competitiveness of the UK banking sector, and facilitate increased lending to small businesses.