On 10 July 2023, the Chancellor, Jeremy Hunt delivered his Mansion House speech. In this article, we summarise the new initiatives announced and consider what progress is being with the Edinburgh Reforms seven months on from their announcement by Jeremy Hunt on the 9th December 2022.
New Mansion House Initiatives
In his Mansion House speech, Jeremy Hunt made various announcements building on the Edinburgh Reforms particularly in the sphere of pensions. In terms of new initiatives (not previously announced), the Chancellor announced:
The “Mansion House Compact” which commits certain large Defined Contribution (DC) pension funds, which represent around two-thirds of the UK’s DC workplace market, to the objective of allocating at least 5% of their default funds to unlisted equities by 2030. It is thought that such investments by DC funds might “unlock up to £50 billion of investment into high growth companies”.
- Facilitating a programme of DC consolidation. The government will set out a roadmap to encourage Collective DC funds, a new type of pension fund.
- The government seeks to ensure that all pensions schemes have access to “a wide range of investment vehicles that enable them to invest quickly and effectively in unlisted high growth companies”. It is not immediately clear what reforms are intended in relation to this aim although Jeremy Hunt said that “Ahead of Autumn Statement, we will test options to open those investment opportunities in high-growth companies to pension funds as a way of crowding in more investment”.
- The government will explore the case for the government to play a greater role in establishing investment vehicles, “building on the skills and expertise of the British Business Bank’s commercial arm which has helped to mobilise £15bn of capital into over 20,000 companies”.
- Introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new scaled-up way of managing Defined Benefit schemes liabilities facilitating consolidation. The government will consult on accelerating the consolidation of Local Government Pension Scheme assets, with a deadline of March 2025 for all LGPS funds to transfer their assets into local government pension pools and ensure greater transparency on investments.
- Publishing draft legislation on prospectus reforms, delivering on Lord Hill’s UK Listing Review.
- Implementing Rachel Kent’s Investment Research Review so as to remove the requirement to unbundle research costs by the first half of next year.
- Establish a new “intermittent trading venue” that will improve private companies access to capital markets before they publicly list, in a global first.
- An independent review into the future of payments – led by Joe Garner – to “help deliver the next generation of world class retail payments, including looking at mobile payments”.
The Edinburgh Reforms – Progress report
The Edinburgh Reforms represent over 30 measures many long trailed, already underway, or contingent on the new Financial Services and Markets Act 2023 (the new act). We previously looked at the Edinburgh Reforms here. They can broadly be grouped into four areas competitiveness; innovation; consumers and ESG. What progress has been made in connection with the key initiatives?:
Key initiatives in relation to competitiveness include:
- The introduction of the new secondary objective for the regulators to facilitate the UK’s international competitiveness and promote sustainable growth over the medium to long term – which became law with the new act.
- Replacing the PRIIPS regime with an alternative retail disclosure regime which is more flexible and much less prescriptive. The Treasury and FCA papers inviting views on the new regime closed in March and on 11 July the Treasury published its response.
- A proposed relaxation of the UK short selling regime in equities. A call for evidence closed in March.
- Completing the overhaul of the UK prospectus regime following Lord Hills review which can now progress upon the new act by way of revoking retained EU law as announced in the Mansion House Speech.
- Implementing the Wholesale Markets Review which is a package of measures some of which are to be implemented through new PERG guidance on multilateral trading systems and some through amendments to MIFIR which were made in schedule two of the new act. On 5 July, the FCA published a consultation on a proposed framework for a Consolidated Tape for bonds.
- Relaxing the ring fencing regime for the large ring fenced banks who are now subject to more robust resolution planning. The most eye-catching aspect of the proposals is to introduce a power for the regulators to remove banks from the ring fencing regime if they are judged to be resolvable.
- Replacing the ELTIF fund structure with a UK long-term asset fund (LTAF) facilitating retail access to illiquid private equity type investments through an authorised fund structure. On 29 June, the FCA published its policy statement.
- Reviewing the senior managers and certification regime (SMCR), initially soliciting views on potential improvements. The Treasury and FCA calls for evidence closed in early June. Proposals from the financial services sector for improvements included:
- extending the 12 week temporary cover role;
- more proportionality for smaller firms; and
- increasing the ability to challenge regulatory decisions.
With respect to technology and innovation reforms, these include:
- Establishing a regulatory environment for stable-coins and cryptoassets which the new act brings within the scope of regulation.
- The Treasury consulted on how cryptoasset might be brought within the regulatory perimeter in February.
- More controversially, advancing moves towards a UK central-bank digital currency. The Bank of England’s CP closed on the 30th June.
With respect to consumers:
- The FCA is revisiting the boundary between regulated financial advice and financial guidance with a view to improving retail access to information by introducing a type of core investment advice, effectively simplified advice on investing in stocks and shares ISAs and subject to a lighter touch regulatory regime. A consultation closed in February; and
- A major rewrite of the Consumer Credit Act 1974 with a view to creating a simpler consumer credit regime. A Treasury consultation closed in March and on 11 July the Treasury published its response with next steps.
In the ESG sphere, the FCA is proposing sustainability disclosure requirements for fund and asset managers. These would include product labelling, entity and product level disclosures and restrictions on the use of certain sustainability related terms. In late March, the FCA announced that due to the significant response it had received it didn’t intend to publish its policy statement until Q3 2023.
Will the package of Edinburgh reforms will be effective in moving the dial for competitiveness in the City?
The reforms are quite modest and the EU is mirroring many of them. The new secondary objective may get the regulators to think about the economic impact of new regulation (as should more rigorous cost benefit analyses which may flow from the new act)
However, for firms, their experience of regulation is not only a function of black letter regulation but also the approach of the regulators. Further, and more importantly the competitiveness of UK financial services is contingent on many other factors, in particular, the general tax and business environment of the UK.