We must keep the shine on Britain’s financial services to maintain our global standing
Britain’s financial services sector is still much envied on the world stage, but there’s no room for complacency. The international competition of financial centres is fierce.
The UK’s capital markets have long been thriving – a diverse cluster of financial services, a large pool of skilled talent, and the robustness of our legal system are just a few factors that we all benefit from.
However, our pole position may not remain for long. Jurisdictions like Singapore are already ahead of the UK in allowing their markets to be transformed by innovation. Other countries are implementing new structural reforms to make their markets more attractive – simplifying tax systems, ensuring a supply of highly-skilled talent, and modernising the broader digital and transport infrastructure that is so crucial to a thriving economy.
While we welcome the series of reviews into UK financial services, action and implementation must follow rhetoric if we are to see real change and progress.
Liz Truss will move into No10 today. This will be the ideal opportunity to level-set and develop and implement a future regulatory framework to maintain our world-beating position.
Innovation and technology should be at the heart of a new framework. A far greater predictor of success than regulation, technology will be key to the UK’s future competitiveness. Our ecosystem needs to be an incubator for wholesale innovation in capital markets. For example, encouraging the widespread development of tokenised securities. This also requires the UK to be able to finance its promising future companies from start-up to scale-up, and nurture them into UK-based world-beating companies. This should include bold leadership on all things green finance. The UK is well positioned to lead in the growing space across a range of dimensions.
Our financial services sector is already set for a downturn unless we have a strong and reliable relationship with the EU on financial services. A fractious EU-UK relationship undermines the UK’s competitiveness and continued bouts of briefing and counter-briefing over illegal migration and the Northern Ireland protocol, will do little to improve relations or build trust.
The EU will not be undercut, and London’s position as a bridge between the US, Asia, EU and UK markets is crucial to institutions based here. It is vital to reach a constructive, workable and cooperative financial services framework, including signing the Memorandum of Understanding on regulatory cooperation – and quickly.
A clear direction for corporate governance and a simplified tax system should be imperative to the framework. Making the UK more competitive as a whole means taking on difficult questions, including examining the UK’s attractiveness to global investors versus other financial centres.
By reforming our corporate tax and governance systems, we can challenge the consensus and encourage buy-side investors to take risks rather than sticking to low-risk value stocks. Reforming our governance will need to include improving transparency, strengthening our anti-money laundering controls and answering some challenging questions. But it needs to be addressed to take a significant step forward. The new government should announce a robust set of policies for the financial services industry, with a clear timeline for implementation.
These reforms won’t happen overnight. Achieving a coordinated, holistic, and bold strategy for financial services – on the scale that’s needed – must be sufficiently thought through.
Mark Austin, the chair of the Second Capital Review, said we should go forward “with a fresh set of eyes and a blank sheet of paper”. There is little better advice.