At the end of his first month as Chancellor, Kwasi Kwarteng has stated that he intends to more visibly separate the British economy from EU rules by deregulating UK financial services. This will be achieved by scrapping all onshored EU rules and requiring the financial regulators to decide whether to keep, amend or scrap those requirements. He has also set out a fiscal plan, aiming to encourage and boost investment in the British economy by scrapping the cap on bankers’ bonuses in order to ‘reaffirm the UK as the world’s financial services centre’.
Why it matters:
This changes the landscape of the UK financial world, changing the rules by which business is run, while attempting to level the landscape between the UK and other countries such as the US by allowing greater financial and personal transactions between them.
The plan also seeks to free up more money for domestic infrastructure and up-and-coming businesses by redistributing some of the £4tn previously possessed by insurers and pension funds.
The Chancellor’s new parameters build on the Financial Services and Markets Bill put forward by Rishi Sunak, which is currently undergoing scrutiny in Parliament (Committee Stage at the time of writing). The Bill will effectively discard any EU regulation which still happens onshore, as well as meaning that financial regulators will in turn have to take the decision to do one of three things: amend these requirements, keep them in their current state or scrap them entirely.
Kwarteng has also scrapped the cap on bankers’ bonuses which was put in place by the EU in 2014, limiting the bonuses to 100% of one’s salary (or 200% with shareholder approval). He hopes that the new measures will increase the amount of domestic investment and induce companies to ‘create jobs here, invest here, and pay taxes here in London, not Paris, not Frankfurt, not New York’. However, Kwarteng did say that a scheduled alteration to the rate of bank corporation tax surcharge would be scrapped. This means that from April 2023, banks and building societies will not be paying a reduced 3% rate on profits (instead staying at 8%) which results in a combined rate of 27%. Another way of increasing investment is by scaling back the requirement which smaller firms face, such as the price cap that payment service providers face because of the Interchange Fees Regulation. Allowing more leeway would indeed be beneficial, considering that 40% of the UK’s FinTechs are payment-based businesses.
Despite these hopes, the realistic probability of increased upcoming investment from foreign funds is rather dependent on the Treasury. If they make a positive determination of the equivalence of foreign regulatory regulation, the FCA is more likely to begin the transition to the new OFR (Overseas Funds Regime) in 2023. It cannot be denied that the Chancellor’s plan does carry some risk. As Rupert Lee-Browne, CEO of Caxton points out, “the cost to the country if it all goes wrong will push the economy backwards”.
Who it affects:
This affects all those in the financial sector, as the rules and relationships established between differing areas will inevitably change.
