Kemi Badenoch pledges to wield the axe on post-financial crisis banking regulation

Kemi Badenoch will today step up her efforts to woo the City as she promises to wield the axe on post-financial crisis banking regulation if she manages to clinch the keys to Number 10.

“London is having its lunch eaten” by overregulation, the Tory leader will proclaim as she proposes a shakeup of the financial regime that she hopes will pump £450bn into the UK economy. 

The Badenoch reforms will ditch ring-fencing, which requires major banks to separate their retail banking operations from their investment banking activities.

The legislation has been a key point of contention across the City, so much so that the nation’s top chiefs wrote to the Chancellor Rachel Reeves last year calling for the system to be scrapped.

“This out-of-date regulation adds friction into banks’ activities, preventing them from buying and holding equities and squeezing investment into the economy,” Badenoch will say today. 

She will also scrap the Financial Ombudsman Service. Based in Docklands, it arbitrates in disputes between banks and their customers. But it has faced accusations of becoming a “quasi-regulator” and Badenoch will pledge to replace it with “independent body that looks at the facts and applies the law”. 

In her speech at the CityUK conference, she will pledge to “sweep away” a culture that assumes “every problem needs a new rule”.

“You may have heard I am a culture warrior. I am going to fix the culture,” she will say. 

Badenoch banking blitz

Reeves launched a long-awaited shake-up to ring-fencing as part of the King’s Speech this summer, with a “growth allowance” that opens the door for retail banks to participate in higher-risk lending. The Treasury has also kicked off plans to overhaul the ombudsman through reforms to the consumer redress protections.

Badenoch’s reforms will also target lender’s capital requirements, where she says “buffer after buffer after buffer” has been piled on. 

She will add that if elected the Conservatives would bring “capital requirements back in line with our competitors”. 

The decision to set lender’s capital requirements rests with the Bank of England’s Financial Policy Committee (FPC), which reduced the minimum requirment to 13 per cent from 14 per cent at the end of 2025.

The rule dictates how much of a bank’s risk-weighted assets must be funds that can absorb unexpected losses without putting customers or the financial system at risk. 

A source familiar with the matter said the Tories would change the legal framework that the banking watchdog and FPC operate under when setting requirements to consider competitor jurisdictions in order to pave the way for adjustments.

A spokesperson for banking industry body UK Finance said:“Financial services are vitally important to the UK economy, and we welcome engagement on how to get the best from the sector and enhance UK competitiveness.

“Ensuring reforms are delivered, from enabling responsible risk‑taking to reform of bank capital requirements, will help the sector support investment and growth across the wider economy”.

Tory leader’s speech precedes Mansion House address

Badenoch’s speech on financial deregulation gets ahead of the Chancellor’s address to City traders at the annual Mansion House dinner, which will take place in mid-July. 

Reeves has made boosting financial services central to her push for higher growth although she has sparred with Andrew Bailey over capital requirements and other lending rules. 

A source familiar with Badenoch’s proposals said it would not encounter the same problems as the Chancellor has given laws would be changed. 

The chief executive of lobby group TheCityUK,  Miles Celic, said Badenoch’s pledges were “an important and valuable contribution to the debate about how our industry can best back Britain and the people of our country”. 

“To drive long-term economic growth, the UK must have a modernised and globally competitive tax and regulatory system that supports investment, innovation and responsible risk-taking. This needs to be underpinned by maintaining the high standards people expect of British markets

Sir Andrew Large, former Deputy Governor of the Bank of England, said the “top-down” approach to financial services regulation was a “first” and “long overdue”. 

“This has to be the way forward, rather than addressing the piecemeal problems individually,” he added. 

A Labour Party spokesperson said: “The Conservatives crashed the economy and sent interest rates rocketing – yet they still haven’t apologised.

“Kemi Badenoch could have made any one of the changes she is now proposing when she was business secretary, but she didn’t.

“Labour has stabilised the public finances – with inflation steady and the economy growing. Our economic plan is the right one.”