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Sunak says regulations are ‘robust’ after relaxing post-financial crisis rules

R

ishi Sunak has insisted regulation of the financial services sector remains “robust” despite the relaxation of banking safeguards introduced after the 2008 financial crisis.

The Prime Minister sought to defend the post-Brexit overhaul of banking rules announced on Friday from criticism that they will introduce more risk and possible instability.

Chancellor Jeremy Hunt said the so-called “Edinburgh reforms” of 30 changes will “turbocharge” growth, including by easing capital requirements for smaller lenders.

The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses

But Mr Hunt also loosened rules introduced after the 2008 financial crisis, which saw some UK banks face potential collapse.

These include ringfencing rules to separate risky investment banking from retail operations and the regime introduced to hold bankers directly accountable to issues on their watch.

Labour warned of a “race to the bottom” as the changes introduce “more risk and potentially more financial instability”.

Fran Boait, executive director of the sustainable economy campaign group Positive Money, said: “Behind the spin, today’s announcements amount to wide-ranging deregulation that threatens to destabilise an increasingly fragile financial sector, with huge risks to the public and little benefit.

“Ring-fencing for banks was one of the few protections brought in after the 2008 crisis, so for the Government to be watering down these rules is extremely concerning.”

The Prime Minister, who previously worked in investment banking, denied he was acting recklessly by relaxing the rules.

“No, the UK has always had and always will have an incredibly respected and robust system of regulation for the financial services sector,” he told broadcasters during a visit to RAF Coningsby in Lincolnshire.

“But it’s also important to make sure the industry is competitive – there are a million people employed in financial services and they’re not just in London, in the city. They’re spread across the country, in Edinburgh, in Belfast, in Leeds, in Bournemouth.

“Today’s reforms will ensure the industry remains competitive, we can create more jobs, but of course this will always be a safe place where consumers will be protected.”

The raft of reforms comes after the City of London has seen trading with the EU impacted upon by Brexit, with Amsterdam overtaking London as Europe’s largest trading hub last year.

The Chancellor’s shake-up includes a commitment to make “substantial legislative progress” on repealing and replacing the Solvency II directive next year, which is hoped will unlock more than £100 billion of private investment.

He also promised to reform the UK prospectus regime to support stock market listings and capital raises, reforming rules on real estate investment trusts and reviewing provisions on investment research in the UK.

Labour’s shadow city minister Tulip Siddiq said: “That this comes after the Tories crashed our economy is beyond misguided.

“Reforms such as ring-fencing and the senior managers’ regime were introduced for good reason.

It’s completely tone-deaf that this Government is hiking taxes for hard-working families, while slashing taxes and boosting bonuses for the banks.

“The City doesn’t want weak consolation prizes for being sold down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.

“Its competitiveness depends on high standards, not a race to the bottom.”

Announcing the measures, Mr Hunt said they “seize on our Brexit freedoms to deliver an agile and homegrown regulatory regime that works in the interest of British people and our businesses”.

“And we will go further – delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences,” he added.

But Liberal Democrat Treasury spokeswoman Sarah Olney said: “It’s completely tone-deaf that this Government is hiking taxes for hard-working families, while slashing taxes and boosting bonuses for the banks.

“Our financial services need good and smart regulation, not more promises of slashing red tape, or a race to the bottom.”

The policy chairman at the City of London Corporation denied this, and said major reform of the UK’s financial sector is something to be “excited” about.

Chris Hayward told BBC Radio 4’s Today programme: “This is not about deregulation, this is about growth.

“We need the help of good growth and good regulation at the same time, they are two sides of the same coin.

“It’s not a race to the bottom, in my view, it’s a chance to actually grow our economy and I think we should be very excited about it.”

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