Mark Taylor
Senior Editorial Manager
Labour’s landslide general election victory sets the stage for a new era in financial services regulation.
The party has promised a “pro-business, pro-worker government” and it has laid out how the City of London will power the broader economy as an engine for growth.
Back in February, senior figures unveiled a plan for the sector titled Financing Growth, which offered insight into Labour’s views on consumer protection, fintech, Open Banking, financial inclusion, and green finance, along with other potential regulatory reviews and reforms.
Following the election, the members behind Financing Growth were appointed to senior cabinet positions and are now expected to deliver on their promises.
Rachel Reeves, a former Bank of England economist with several years’ experience in the private banking sector, is the UK’s first female ever Chancellor of the Exchequer. In one of her first speeches, Reeves referenced the importance of the City in Labour’s plans for boosting the UK economy, leaning more toward investment initiatives than interventionist policies.
Prime Minister Keir Starmer also named Tulip Siddiq as the new City Minister; Siddiq is responsible for overseeing the financial services sector, and has been working with figures in London since being appointed to lead Labour’s efforts in the City in 2021.
Reeves and Siddiq will be the main players for City executives to watch as the government sets about its change agenda.
What did Labour’s manifesto say about financial regulation?
Labour’s manifesto outlines a plan to reform various regulatory bodies, including the Financial Conduct Authority (FCA). It pledged to review the mandate of the FCA, and potentially grant the agency more power to monitor and intervene in financial institutions’ activities.
Whilst the enhanced oversight is designed to strengthen the financial system, it will invariably lead to increased compliance demands and operational changes as firms meet rising expectations.
Reeves expanded on some of the promises following her appointment, stating that whilst Labour will seek to revisit aspects of Boris Johnson's Brexit deal, the focus is likely to be around workers’ rights in the City of London, and areas such as cross-border clearing.
Labour and financial technology
As with any government dialled into the promise of technological trends, Labour has targeted AI and digital currencies as areas worth further exploration.
The party wants to capitalise on the Artificial Intelligence boom, which it says is “profound for the future of financial services in the UK”.
In government, the party said it “will set clear standards for AI safety” and adopt an agile approach to regulation so that the technology can be utilised by financial services firms and other organisations to boost growth in every part of the economy.
Labour also signalled its intent to make the UK “a global leader in tokenization” by tackling legal and regulatory uncertainties that surround digital asset classes. It pledged to work with regulators to establish “a proportionate, outcomes-based regulatory regime to oversee the technology”.
The party has also backed the idea of a central bank digital currency and said it will support the Bank of England in heading off threats to data protection and financial stability as it seeks to meet that goal.
Touching on the previously mentioned reform of regulatory bodies, the party has noted that many supervisors are “currently ill-equipped to deal with the dramatic development of new technologies”, which often cut across traditional industries and sectors.
“Labour will create a new Regulatory Innovation Office, bringing together existing functions across government,” it said in a statement last year. “This office will help regulators update regulation, speed up approval timelines, and co-ordinate issues that span existing boundaries."
Open Banking and Open Finance
Labour has referenced its aims for Open Banking and Open Finance twice; in Financing Growth and inside its election manifesto.
“Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework,” the manifesto pledge reads.
In Financing Growth, the party said there is a need to build upon the UK’s early successes in Open Banking to deliver new use cases for small businesses and consumers.
“Labour supports the efforts of the Joint Regulatory Oversight Committee (JROC) to lay out the roadmap for the next phase of Open Banking and ensure appropriate consumer protections are in place, and determining the future oversight entity, and establishing an economically sustainable ecosystem,” it said. “Labour supports the JROC's work to define the next phase of Open Banking including laying out the long-term regulatory framework, determining the future oversight entity, and establishing an economically sustainable ecosystem.”
The party said the Data Protection and Digital Information Bill, which is the UK’s answer to the EU General Data Protection Regulation, provides the regulatory foundation for the future Open Finance infrastructure.
Key takeaways
Industry experts have noted how Labour’s current plans for financial services are high-level, without detailed specifics on how it aims to deliver in government. Given most of the information is from manifesto pledges this is not uncommon.
“Firms will have an opportunity to participate in upcoming consultations to inform policymakers about areas where they have experienced significant challenges and turbulence, including post-Brexit,” said Chris Chapman, partner at Mayer Brown law firm.
The call to industry for regulatory streamlining will be an area to watch, Chapman said, noting that Labour wants to promote an “outcomes based” approach in line with the Consumer Duty. He questioned how they will balance this with their desire for clarity and for predictable and stable rules within the industry, adding that further detail is anticipated.
Overall, businesses should prepare for increased regulation under the Labour government, but this may also lead to new avenues for growth and technological innovation for forward-thinking businesses. The City has long shown a willingness to adapt, embrace intelligent solutions and adapt quickly to turbulent times, and these traits will be critical as the new government seeks to leave its mark on the UK’s financial services sector.
To learn more about how CUBE can help your business cut across regulatory uncertainty and transform compliance operations, contact us today.