Major reforms to UK financial regulation will provide a more than £1.6bn boost to the City of London over the next decade by cutting costs for banks and encouraging more lending, according to a government assessment. The Financial Services and Markets Bill, which has been introduced into the House of Lords, sets out to achieve the most drastic shake-up of oversight of the City in more than a decade. The legislation — which will scrap the payments watchdog, ditch certification rules for City employees and overhaul the financial ombudsman — will cut “direct annual net costs” for businesses by almost £127mn, the government estimated in an impact assessment.
Officials calculated the wider effects of the reforms, such as increased lending, meant its overall benefits to society over the next decade would reach £1.64bn, based on the government’s “net present social value” measure that weighs the broader impact. Chancellor Rachel Reeves has championed the City as a big driver of UK growth and bowed to pressure from international banks not to increase a levy on the sector in her second Budget in November 2025. However, consumer groups challenged the government’s calculations. “It’s fanciful to think that any of these changes will materially alter the growth of our financial services industry or wider UK economy,” said James Daley, head of Fairer Finance, adding that the reforms would shift regulation too much in the City’s favour.
The government defended its reforms by saying the UK financial services industry was “facing increasingly strong competition from other jurisdictions and the sector has not grown in real terms since 2010”. US regulators have ushered in a wave of financial deregulation since Donald Trump returned to the White House last year, increasing pressure on other countries to water down many of the rules imposed after the 2008 global financial crash. The main benefits for financial services companies from reforms in the bill are expected to be from cutting the costs of reporting to regulators and of compensating consumers.
The biggest benefit will come from scrapping the statutory certification regime, which was introduced after the 2008 crisis, requiring financial services companies to check thousands of senior staff are fit and proper every year and record the results on a central directory.
Overall, the government aims to halve the burden of the wider senior manager and certification regime, which covers almost 150,000 employees, cutting costs for companies by almost £70mn a year. The impact assessment estimated another £31mn of annual costs would be saved by shortening the deadlines for regulators to authorise financial firms, introducing a provisional licensing regime for innovative firms and requiring watchdogs to produce long-term strategies. Overhauling the Financial Ombudsman Service, which provides the main recourse for consumers to seek compensation for unresolved complaints against firms, is also expected to save the City just over £18mn a year.
The reforms, reducing the ombudsman’s flexibility to rule against companies that complied with regulation and introducing a 10-year time limit for complaints, are forecast to cut the number of cases it handles by about 28,000 a year, of which about 11 per cent would have been upheld in recent years. In the year to March it received 214,600 complaints. The government is also overhauling the “appointed representatives regime”, which allows authorised financial services companies to appoint unregulated firms or people to carry out regulated activities under their responsibility.
Companies appointing such representatives have been the subject of almost 20 per cent more complaints than others. The government wants the Financial Conduct Authority to start vetting the 8,000 representatives appointed each year to ensure they are suitable. This reform would save almost £13mn partly by lowering complaints, it estimated. Measures to expand the rules on who can become a member of a credit union would help them to serve more people and widen access to affordable finance, the government predicted. Lending would also be boosted by plans to loosen rules requiring banks to ringfence their retail arms from their investment banking operations, it added.
This article was made by Martin Arnold https://www.ft.com/content/33e0d067-1869-4715-84b9-fa1b1b83b878?syn-25a6b1a6=1
