Mansion House Speech: Reeves sets out her vision for the future

Chancellor of the Exchequer, Rachel Reeves, has delivered her first Mansion House speech. This outlined a series of financial services reforms aimed at boosting investment, growth and competitiveness in the UK economy. The first area focus is investment through financial services, while the second area concerns regulatory reforms to unlock innovation and growth. In some ways, the speech is a continuation of policy, with certain measures alluded to already part of ongoing reforms. In other ways, the speech represents a completely new path. There is not much for firms to do right now in light of the speech except for await further communications from the Government and the regulators.

Key takeways

• The outcome of the review into the SMCR (see our briefing here) is soon to be published, with proposals to reform the certification regime expected.
• Further changes concerning position management and transaction reporting are in the pipeline in relation to the UK MiFID regime.
• The consumer redress system will be reformed.
• There will be a regulatory regime for ESG ratings providers.
• A response to the consultation on Private Intermittent Securities and Capital Exchange System (a trading venue for private company shares) has been published, and there are plans to lay legislation establishing the regime by May 2025.
• The Government is keen to move the dial in relation to UK payments, particularly in relation to Open Banking.

Background

The Government set out its long-term plan for growth in its Autumn Budget of 2024, with the financial services sector identified as one of eight growth-driving sectors in Invest 2035, the Government's industrial strategy. The strategy aims to address barriers growth-driving sectors and to create the right conditions for increased investment. The Mansion House speech provided further detail on how the Government would partner with industry, regulators to create the conditions to grow the UK’s financial services sector.

Call for evidence on Financial Services Growth & Competitiveness Strategy

A call for evidence has been issued on a Financial Services Growth & Competitiveness Strategy that will outline the Government's  approach to the sector for the next 10 years. The Government hopes that the strategy will help to deliver sustainable and inclusive growth. Views are sought on how regulation can support responsible and informed risk-taking.

The Government has provisionally identified the following priority growth areas: fintech; sustainable finance; capital markets; insurance and reinsurance; and asset management and wholesale services.

• Sustainable finance. The Government considers that the transition to a net zero, climate resilient, nature positive economy, and increasing demand for sustainable financial products globally, provide opportunity for UK financial services firms.
• Fintech. The Government wants to build on the success of what it views as the vibrant fintech ecosystem and lay a good foundation for next generation of fintech companies.
• Capital markets. The Government wants to build on the success of Private Intermittent Securities and Capital Exchange System (PISCES) and the launch of the Digital Securities Sandbox (see our briefing here). The consultation response has also been published in respect of PISCES. The Government is also seeking views on possible ways it can collaborate with regulators and industry to encourage the adoption of new technology and innovation (e.g. tokenised assets). Areas of interest include encouraging more consumer participation in capital markets, particularly over the longer time horizon.
• Asset Management and Wholesale Services. The Government discusses increasing the competitiveness of asset managers and wholesale services. Means for achieving this include simplifying regulation (in particular for AlFMs) and supporting the adoption of new technology e.g. on fund tokenisation.

The deadline for the call for evidence is 12 December 2024. The strategy is expected to published in Spring 2025, together with the industrial strategy and other sector plans.

Consumer Redress

The Chancellor has called for greater cooperation between FOS and the FCA in order to provide a more predictable regulatory environment for firms. A memorandum of understanding has been published between the FCA and FOS containing details of a Wider Implications Framework and details on how the agencies will share information between themselves.

On the same day, the FCA and FOS published a joint call for input on modernising the redress system and ensuring consumers get appropriate redress efficiently when things go wrong. Areas views are sought on include the following:

• ways to modernise the current redress framework;
• the negative impacts of mass redress events and the redress scheme in general on firms, consumers and their representatives; and
• the changes that could be made to the redress framework to enable mass redress events to be better identified and managed to ensure better outcomes for consumers.

The deadline for comments is 30 January 2025.

MIFID

Wholesale markets review

HMT issued a Policy Paper containing an update on the next stage of reforms delivered under the Wholesale Markets Review (see our briefing here) and FSMA 2023 (see our briefing here).

Key points

• Legislation is coming that will give the FCA more powers of direction in relation to the reporting of OTC positions. This will be informed by lessons from the Nickel crisis in March 2022. The measures should help exchanges to better operate position management responsibilities.
• HMT will start revoking the firm-facing requirements in the UK MiFIR relating to transaction reporting, with the FCA to have responsibility for setting the new regime.
• HMT will revoke the firm-facing regulations within the MiFID Organisational Regulation and these will be replaced with FCA rules.

Advice Boundary

The FCA published feedback on its discussion paper (see our briefing here) on the advice guidance boundary review (DP23/5) and next steps. The discussion paper set out a three-pronged advice regime with varying requirements to complement existing support firms give to consumers: clarification on the advice boundary; targeted support; and simplified advice.  Further clarifying the advice boundary involved giving FCA-authorised firms greater certainty (either via further guidance or simplifying existing guidance) to provide more support to consumers without providing a personal recommendation under existing rules.

The FCA confirms that the response to its proposals were largely positive, with many agreeing that targeted support offered the best way of assisting consumers at scale.

The FCA is currently carrying out consumer research into retail investments that will (among other things): increase its understanding of the decisions retail investors make; look at addressing the harms in the market; and further understand the barriers to investors. It is planning a series of roundtables with small-advice firms in 2025.

The FCA also refers to changes being made to the UK disclosure regime via the Consumer Composite Investments (CCIs) regime, which will soon replace UK PRIIPs (see our briefing here). It confirms plans to consult on proposed rules for the CCI regime in 2024. The new retail disclosure regime is expected to be in place in H1 2025.

Sustainable Finance

UK Taxonomy

The Government has published a consultation on a UK Taxonomy. This follows various reports issued by the Green Technical Advisory Group (GTAG) in relation to the UK Taxonomy. The Government is seeking views on whether a UK Taxonomy is a suitable means for supporting the mobilisation of transition finance

Areas covered by the consultation include the following:

• specific use cases for a UK Taxonomy e.g. supporting market integrity and preventing greenwashing;
• maximising the usability of a UK Taxonomy (including key design features);
• environmental objectives and sectoral scope of the UK Taxonomy; and
• how to incorporate Do No Significant Harm (DNSH) Principle and what to do about business practice safeguards.

ESG Ratings Providers

The Government has also published a response to its consultation (see our briefing here) on a regulatory regime for ESG ratings providers. It has also published for comment a draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2024.

The Government has made some changes to its original proposals, confirming that providing an ESG rating will be a specified activity under the regulated activities regime in FSMA where that rating is:

• produced using an established methodology and a defined ranking system of rating categories;
• made available by an ESG rating provider; and
• likely to influence a decision to make a specified investment.

The regime captures ratings made available to UK users, both by providers located in the UK as well as providers based overseas.

Definitions such as "ESG rating” and "ESG opinion" have also been provided to add clarity.

The regime will also include a number of exclusions based on activity rather than the entity. This includes the regulated products and services exclusion for firms creating an ESG rating as part of the development and delivery of another regulated activity. It will also include the ancillary non-commercial exclusion for ESG ratings produced as an integral part of journalistic, academic, or registered charitable activity.

The Government confirms that ESG ratings providers in scope will become FCA-authorised and that the FCA will consult on draft rules and guidance for ESG ratings providers.

The deadline for comments on the draft SI is 14 January 2025.

The Chancellor's speech also alluded to the launch of the Transition Finance Council. In addition, six overarching Principles for Carbon and Nature Market Integrity for the supply and use of voluntary credits were launched. This is in response to concerns relating to the quality and integrity of some credits and claims made about environmental impact. Among other things, the principles set out details on responsible use.

Remit Letters

The Government published a letter to the FCA and the PSR containing recommendations in relation to payments regulation concerning: enhancing co-ordination to address congestion in the regulatory landscape; supporting the development of open banking (including requesting the FCA to be the UK regulator for open banking); maintaining high standards of consumer protection; and the UK's retail payments infrastructure needs.

The Government also published letters outlining remits and recommendations in respect of the FCA and the PRA. The letters call for the regulators to support more responsible and informed risk-taking and to consider opportunities to encourage innovation by the financial services sector. For the FCA, it is suggested that consumers be allowed to make informed choices including where this leads to higher risk. The regulators are also called to embed the secondary international competitiveness and growth objective, which was introduced via FSMA 2023 (see our briefing here).

Payments and Innovation

The National Payments Vision (Vision) focuses mostly on retail payments and responds to the findings of the November 2023 independent Future of Payments Review 2023 led by Joe Garner. This called for a reduction in regulatory congestion and set out ten recommendations for improving Open Banking (among other things). The Government has published  a remit letter (details above) and a Memorandum of Understanding for Payments Cooperation.

The Vision sets out plans to create a "trusted, world-leading payments ecosystem delivered on next generation technology, where consumers and businesses have a choice of payment methods to meet their needs". The idea is for this to be supported by a resilient infrastructure and a regulatory framework that is predictable and proportionate.

A Payments Vision Delivery Committee, a cross-authority group chaired by HMT, is to be set up to:

• provide greater clarity on the upgrades required to the UK’s Faster Payments System;
• assess future requirements for the UK’s retail payments infrastructure, looking beyond the upgrading of Faster Payments; and
• consider governance arrangements needed to deliver the above, including proposals to reform Pay.U K.

The Vision also provides an overview of progress made in relation to the digital pound (see our briefing here), with the Government confirming that:

• no decision made yet on whether to implement digital pound and HMT will continue to work with BoE;
• experience gained in relation to the digital pound will support private innovation in digital currency technologies; and
• implementation of a digital pound would need to be accompanied by primary legislation.

Open Banking

The Government wants account-to-account payments to increase in popularity and for Open Banking to be come an "overlay service for the accessing of account data and initiation of account-to-account payments". The Government also confirms:

• the FCA is to become sole regulator of Open Banking Smart Data Scheme and the Joint Regulatory Oversight Committee (JROC) is to be disbanded; and
• a sustainable commercial model for Open Banking is to be established and the FCA is to look at the commercial model for e-commerce use cases.

Digital identity

Further details are laid out in relation to digital identity products. The Vision refers to the Data (Use and Access) Bill, which contains measures on digital verification services and is currently proceeding through Parliament. Reference is also made to the UK digital identity and attributes trust framework, noting digital verification service providers have already been verified against these standards. The Government is to consider the work of the Centre for Finance Innovation and Technology (CFIT) on digital verification.

Payments fraud

In relation to payments fraud, the Government welcomes progress made under Online Safety Act 2023, and calls for a cross-sectoral approach to tackling fraud. It also confirms that aspects of the Payment Services Regulations 2017 relating to Strong Customer Authentication will be revoked so the FCA can incorporate elements of the technical standards into its rules.

DIGIT

The Government also confirmed that the UK will launch a pilot to deliver a Digital Gilt Instrument (DIGIT).

Governance

Ms Reeves speech confirmed that:

• regulators are to shortly publish the outcomes of the SMCR review;
• the Government is considering removing Certification Regime in the SMCR and replacing it with a more proportionate approach; and
• the Government supports reforms on reducing the length of pay deferrals.