Rachel Reeves has unveiled a package of reforms to the UK’s financial system set to be the biggest in a decade, aimed at delivering economic growth and spurring on retail investing.
Changes include reforming the bank ring-fencing regime and reducing burdensome regulation in the City in order to reintroduce “informed risk-taking” into the financial system, the Government said.
The Chancellor said the “Leeds reforms”, unveiled in the West Yorkshire city, “represent the widest set of reforms to financial services for more than a decade”.
New measures are intended to help drive increased levels of investment among both financial firms and individuals.
The Treasury said the ring-fencing regime – which was brought in after the 2008 financial crisis to separate banks’ retail and investment banking activities – will be reformed.
Economic Secretary Emma Reynolds will lead a review into how changes can strike the right balance between growth and stability, including protecting consumers’ deposits, it said.
Britain is a global outlier in enforcing ring-fencing, and major banks have been divided over whether the system is necessary to protect savers or is overly burdensome.
The Treasury said it was backing regulatory reforms for mid-sized banks to free up money for lending and investment.
Furthermore, the plans include cutting layers of red tape for businesses in the City.
This will see the UK’s Financial Ombudsman Service – which settles complaints between consumers and businesses – modernised and simplified to help create a more predictable system and prevent consumer compensation being delayed.
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It will also speed up changes to the senior managers regime, which was also brought in after the 2008 crisis to vet individuals before they are appointed and hold them accountable for problems and risk-taking.
The Government said it will radically streamline the current regime and cut the burden on firms in half.
Cuts to City red tape sit alongside efforts to boost the level of investment among individuals.
This includes rolling out “targeted support” from April next year, whereby banks can alert customers with cash sitting in low-return current accounts about investment opportunities.
Major banks and financial firms including Barclays, Lloyds, Vanguard and Hargreaves Lansdown are backing a new advertising campaign highlighting the benefits of investing.
Risk warnings on investment products could also potentially be watered down as part of a review into possible barriers to investing.
The Government also said it will continue to consider reforms to ISAs and savings to strike the right balance between cash savings and investment.
Ms Reeves was widely expected to leave cash ISAs untouched in the measures announced on Tuesday, following speculation that she was planning to cut the annual tax-free allowance in a bid to spark more investment instead.
“We are fundamentally reforming the regulatory system, freeing up firms to take risks and to drive growth,” Ms Reeves told finance chiefs when setting out the reforms in Leeds.
The “much-needed” measures are intended to “really invigorate our financial services sector, but with the core purpose of therefore reinvigorating the whole economy,” she said.
The reforms build on changes that loosen mortgage lending rules for banks.
It means more mortgages will be available at more than 4.5 times a buyer’s income, which is expected to open the door to thousands more loans for first-time buyers.
Chris Cummings, chief executive of the Investment Association, said: “We called on the Government to undertake bold reforms to strengthen the UK’s retail investment culture and they have done so.
“Better communication of the returns investing brings is key if we’re to empower more people to invest, and we’re proud to take part in the industry-led campaign to raise awareness of the benefits of investing and the review of risk warnings.”
Sarah Coles, head of personal finance for Hargreaves Lansdown, said: “It’s incredibly positive to see Rachel Reeves take some key steps towards closing the UK’s yawning retail investment gap.
“There will be a new era of investment with the advent of new rules allowing companies to offer targeted support to their clients, alongside changes to risk warnings so they actively help retail investors understand their options rather than standing in their way of harnessing the incredible power of investment.”