Rachel Reeves urged not to weaken UK's post-crisis bank regulations

Times

2 days ago

The architect of the ring-fencing rules for banks has warned ministers that it would be a 'bad idea' to fundamentally weaken the regime after the chancellor set out plans to loosen what was the centrepiece of Britain's post-crisis financial regulation.
Rachel Reeves pledged on Tuesday to make 'meaningful reforms' to ring fencing, which was brought in after the 2008 banking meltdown and forced lenders to legally separate their high street businesses from riskier investment banking divisions.
It follows fierce criticism of the regime in recent months from the bosses of some of Britain's biggest banks, who wrote to the chancellor in April calling on her to abolish the rules altogether, arguing that they were inefficient and had been superseded by other reforms.
• Rachel Reeves to relax bank ring-fencing rule to boost growth
While the Treasury said it was 'committed to upholding' ring fencing, it revealed it would review the rules to examine 'how changes can strike the right balance between growth and stability'. This prompted Sir John Vickers, who led the government-backed commission that originally proposed ring fencing in 2011, to caution Reeves against going too far with any changes.
'There may well be scope to improve ring fencing's implementation but any weakening of the basic architecture would be a policy mistake and a bad idea,' he told The Times.
'It would remove an important element of safety and soundness regulation of UK banking, and not help the policy objective of more investment and growth in the UK economy.'
The Treasury said that areas its review would examine included allowing ring-fenced divisions to offer more services to UK businesses and greater flexibility to share back-office resources across a bank's ring fence.
It was one of a flurry of regulatory changes unveiled by Reeves on a visit to Leeds, which the chancellor said would 'put the UK ahead in the global race for financial businesses'.
The overhaul was announced just hours before Reeves made a highly anticipated speech to City grandees at Mansion House, in which she called her revamp the most wide-ranging regulatory reform package for financial services in more than a decade.
The reforms include:
• An overhaul of the Financial Conduct Authority's sweeping consumer duty rules, which were only introduced in July 2023, to tackle worries about how the regime affects the way businesses interact with each other.• Streamlining the senior managers regime, which is a set of post-crisis regulations aimed at ensuring finance executives are held accountable for their actions.• The creation of a new 'concierge service' to help overseas financial firms enter the UK, and the establishment of a listings taskforce to attract companies to the London stock market. • Reform of the Financial Ombudsman Service, which resolves consumer disputes with firms, to address industry concerns that it has become an unpredictable 'quasi-regulator'. • Rule changes by the Bank of England to reduce capital requirements on lenders, including a plan to cut red tape on small and mid-sized banks to boost their ability to compete in the mortgage market.
The chancellor's overhaul package, dubbed the 'Leeds reforms', seeks to 'rewire' Britain's financial system. It comes as pressure mounts on Reeves to show that the government can turbocharge the UK's faltering economy.
The Treasury said its aim was to double the growth rate in UK net exports of financial services by 2035 and to 'tear down the barriers to attracting investment in the finance sector'.