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Rachel Reeves says British banks and insurers are choking under unnecessary regulations. This is not quite true. Even if it were, some of the first rules she has picked to unwind barely cause a hiccup.
The UK chancellor laid out a series of reforms in her set-piece Mansion House speech on Tuesday. One is a plan to “radically streamline” the Senior Managers and Certification Regime, which was designed to strengthen culture and personal accountability in the financial sector after the financial crisis and Libor scandal.
The government wants to reduce the burden of the rules by half. But 50 per cent of not very much is not very much. While the SM&CR is a mouthful, it has also proved much easier to swallow than feared. So much so that when the previous government asked for feedback on the regime in 2023, some eight years after bankers professed themselves “terrified” by its introduction, two-thirds of respondents said it was working as intended.
Reeves cites the number of people covered by the certification regime as evidence of an overly cautious culture. Almost 140,000 employees now have to prove they are “fit and proper” if their job involves a risk of causing “significant harm” to the firm or customers. Yet that equates to just four people per regulated firm.
True, there is always room for improvement. Reducing the time it takes to approve new senior hires is sensible, for example, but won’t move the needle when it comes to the UK’s global competitiveness. The FCA estimates that even for the very largest firms, the direct costs of compliance are only around £100,000 per year. A modest compliance burden is a feature, not a bug.
The rules have been so successful, in fact, that several countries such as Australia and Singapore took inspiration from them to design their own rules. Focusing on improving a regime already widely considered successful looks like a government seeking changes that are easy rather than impactful.
Some of the other proposals made by the chancellor on Tuesday are more promising. Overhauling the Financial Ombudsman Service, sparing small banks from the so-called MREL capital requirements and a campaign to encourage retail investing, for instance, align with previous suggestions in this column. However, companies will have to keep waiting for details of the changes with the biggest potential impact, such as tearing up bank ringfencing rules.
Reeves is right to think the UK could better serve its financial sector. The cause of friction, though, isn’t regulatory differences but the uncertainty that has bedevilled British politics and economics since the 2016 Brexit vote. In that respect, the best thing she and her government can do isn’t tinker round the edges, but deliver on another promise she made on Tuesday: to restore the country’s reputation for stability.
