Britain has announced plans to relax banking and insurance regulations in an effort to boost the country’s financial sector following Brexit. The move comes as the UK’s finance industry, which contributes around 12% of the country’s economic output, has been cut off from much of the EU. London, the financial hub of the UK, also faces tough competition from New York, and a recent survey revealed that Singapore is now nearly on par with London in global financial center rankings.
The proposed changes, part of the “Edinburgh Reforms” outlined in December, were set out by the finance ministry and are open for public consultation. The reforms are based on recommendations made by a panel led by Keith Skeoch, a former investment fund boss. One of the key changes is to increase the threshold at which the ring-fencing rule applies to banks from £25 billion to £35 billion.
The ring-fencing rule, introduced in 2019, aims to protect deposits by separating them from riskier investment banking activities. However, it also adds costs for banks. The proposed changes aim to make the rule more adaptable and reduce unintended consequences. Financial services minister Andrew Griffith believes that the reforms will benefit banks, customers, and the UK banking sector by improving outcomes, increasing competition, and enhancing the sector’s competitiveness. The changes are also expected to boost lending to smaller businesses.
In addition to the banking reforms, the Bank of England (BoE) has also announced a reform of Solvency II insurance capital rules inherited from the EU. The insurance industry and lawmakers who supported Brexit see this reform as a “Brexit dividend” that could unlock up to £100 billion for investment. The reform includes a matching adjustment that ensures insurers’ assets generate sufficient cash to cover future payouts on policies and pensions, subject to a discount. The BoE has proposed adjustments to reflect the government’s decisions on the required level of financial resilience for insurance companies. The reform aims to protect policyholders while enabling the annuity sector to increase investment in the UK economy.
The proposed changes to banking and insurance regulations are expected to be implemented through secondary legislation in early 2024. The UK government aims to enact the changes as soon as they clear parliament. The reforms are seen as part of the government’s efforts to maintain the global competitiveness of the UK’s financial sector and attract investments.
More detail via The Straits Times here… ( Image via The Straits Times )