The speech made by Andrew Griffith, the Economic Secretary to the Treasury, on 9 March 2023.
Introduction
Good morning everyone and thank you for the invitation to speak to you today.
I am also glad to see that Professor Hübner will be speaking afterwards, in a reflection of our shared commitment to the highest standards of global market regulation.
And we couldn’t be in a better place to discuss these issues.
No one is sure how the market got its name, but Old Billingsgate has been synonymous with fish since the 16th Century, and it was the century after that Parliament passed an act to make it a “free and open market for all sorts of fish whatsoever”.
There was one exception: the sale of eels from Dutch fisherman.
As London boomed, the city’s population began eating so many eels that the domestic stock couldn’t keep up.
And over time, the Dutch had shown they were the only people who knew how to transport live eels in bulk. British ships couldn’t manage it. And so, the Dutch established a de facto monopoly on eel sales in London.
There’s two pertinent points here.
One, this venue, having dealt with slippery animals before is well suited to accommodating politicians.
And two: some countries are better in certain sectors. The Dutch had the eel trade, and we have financial services.
But jokes aside (because, of course, the Dutch do share with us a long-standing tradition in financial services) this sector is incredibly valuable to our country.
This is an industry that contributes 12% of the UK’s total economic output and employs over 2.2 million people.
It’s the UK’s largest net exporting industry and its largest taxpayer.
So let me start by saying “thank you”. Thank you for taking risk, employing and developing your people and the valued contribution you make. I never forget that you have a choice where to locate or to raise or invest capital.
Because it’s a competitive world out there and the UK must and will compete for every pound, dollar or euro of business.
And it’s my job to make sure we put in place the support environment in which you can do so.
Led by the Prime Minister, supported in lockstep by the Chancellor and me, this government firmly believes that financial services and private capital are at the heart of the solutions to the national and international challenges we face, from aging populations to protecting nature, from supporting left behind communities to conquering diseases.
So, I want to assure you of the importance that the government places on this sector. Not just through my words today, but through our actions.
Capital Markets
In particular, one of the UK economy’s great strengths is its capital markets.
The UK is blessed with capital markets that are among the deepest, most liquid and most competitive anywhere in the world.
We are Europe’s leading hub for investment, and the second largest globally. We have the most international equities market and two of the world’s largest clearing houses.
Our capital markets are relied upon by some of the world’s largest businesses – and, by the way, will be crucial in funding the global transition to clean, low carbon energy.
It explains why, in 2021 alone, more than £17bn of new capital was raised for firms in the UK on the London Stock Exchange alone, a 15-year high, with over 120 deals completed.
How do we account for this achievement?
It’s through our fundamental strengths such as the rule of law, English language, a fortuitous time zone, and the fact that London is one of the world’s most diverse and liveable cities.
It’s through the expertise of firms that base themselves here, whether that be in finance itself or all the services that support it, from legal to accounting.
But this strength is also fostered through innovation, competition and high regulatory standards.
The government of which I am a part has a clear vision: making UK regulation more proportionate and simpler… keeping it relevant for a modern world and enabling innovation.
This government is focused on delivering this vision for the financial services sector. And when I say focussed on delivering, that’s exactly what I mean. My mantra is delivery, delivery, delivery.
Capital Markets reforms
So, building on the strengths of capital markets, we are pressing ahead with an ambitious programme of capital markets reforms.
We are implementing the practitioner led reforms suggested by Lord Hill and Mark Austin – who have provided concrete steps to help us be more competitive.
This includes completely overhauling the UK’s Prospectus Regime to widen participation in capital markets, improve the efficiency of fundraising for companies and improve the quality of information investors receive.
We will do this by repealing the existing Prospectus Regulation and replacing it with a new regime tailored to the UK. Our new regime will be simpler, more agile, and more effective, and we have already published draft legislation to do that.
We aren’t stopping there – we are also keen to accelerate the settlement of financial trades, and as part of the Edinburgh Reforms we announced the creation of an industry taskforce to see how we can do so, such as by moving to a ‘T+1’ standard.
Faster settlement could reduce counterparty risk, increase efficiency and promote greater automation of back office processes.
It will ensure that the UK continues to be a world leader in this area.
The taskforce is being chaired by Charlie Geffen, who is bringing together the industry to recommend an approach that works for the UK.
Separately, we have also set up the Digitisation Taskforce, which will drive forward the digitisation of all remaining paper share certificates in the UK.
It will also set out how we can improve communications between different parts of the market, and how investors will be able to have far better interactions with the companies they invest in.
This work is being led by Sir Douglas Flint and I am looking forward to receiving his interim report this spring.
I know that some of those in the room are already involved in these initiatives. Thank you for your insight and I look forward to seeing your recommendations.
We are also reforming our rulebook for wholesale markets through the Financial Services and Markets Bill.
Those changes will boost liquidity by giving greater choice to firms on where and how to trade.
To give you one example which I know is of particular interest to many of you.
The Bill will allow the Treasury and the FCA to put a framework in place to facilitate the development of a consolidated tape by 2024.
Transparent and timely data plays a key role in helping markets to function efficiently and the tape, by acting as one single source, will improve liquidity and lead to lower trading costs.
This is particularly true for the fixed income markets, given how fragmentated the data currently is.
And there’s more…
In December, we announced that we are taking a closer look at retail disclosure and short selling.
On retail disclosure, the government is committed to repealing the current PRIIPs regulation as a matter of priority and replacing it with an alternative framework that works for the UK.
As for short selling, I see it as an important tool in financial markets. The UK should therefore have regulations that support it and do not place excessive burdens on market participants.
Both of these areas are ripe for reform with the common theme of reducing red tape and making markets work better.
Let me also share with you some news that I am announcing this morning.
To ensure that the UK continues to be one of the best places for companies to list and trade, we need to ensure that investors have access to the information they need to make investment decisions.
Companies need to feel confident that their investors will understand them, their goals and ambitions, and embark with them on their growth journey.
This is why the volume and quality of research matters. That translates into more liquid markets and can help obtain higher valuations.
I am therefore pleased to announce that another City expert … Hogan Lovells Partner and financial services regulatory expert Rachel Kent, will lead the Investment Research Review.
The Review will gather evidence on the impact that the UK’s investment research offering has on both public and private markets, recognising the role that research plays throughout a company’s life cycle. While a lot broader in scope, Rachel will also look specifically at the impact of the MiFID unbundling rules when considering solutions.
With her experience and knowledge of the sector, as well as the regulatory framework, I have every confidence that Rachel will do a fantastic job at convening the sector, looking at the evidence and finding solutions to improve the UK market for investment research, before delivering her recommendations in June.
FSM Bill
As previously mentioned, a key part of delivering our reform agenda is the Financial Services and Markets Bill, currently progressing through its final weeks in Parliament.
Without getting into the weeds of the Bill, it will enable us to progress our ambitious plan to replace retained EU law with an approach that is tailored to the needs of UK markets.
Central to this is the new duty on the FCA and PRA to facilitate the international competitiveness of the UK and its growth in the medium-to-long term.
We will do this in a balanced, ordered way – and will only target policy change where there are clear benefits to the sector and the wider economy.
Of course, as the regulators take on more responsibility for setting rules once we repeal retained EU law, it is right that their objectives reflect the critical role of the financial services sector in supporting the wider economy.
Increased responsibility for the regulators must be balanced with clear accountability, appropriate democratic input, and transparent oversight.
To that end, the Bill includes measures to increase the accountability of the regulators to Parliament, strengthen their relationship to the Treasury, make them publish more of their performance metrics and enhance their engagement with stakeholders – including many of you here today.
A sector at the forefront of technology and innovation
And in changing – or innovating – our regulation, we are simply in keeping with the innovative traditions of this sector.
We are one of the world’s top two financial hubs and the world’s largest net exporter of financial services.
Your capability to deploy capital behind innovation combined with our research strengths, makes the Prime Minister – the entire Government’s – aspiration to be a technology superpower by 2030 ambitious but highly achievable.
The financial services sector is driving this agenda, and leading the change brought by technology and innovation.
And the government is there to help you drive that change…
We are creating a Financial Market Infrastructure Sandbox, which will help industry adopt and scale digital solutions that could radically change the way markets operate, and lead to markets that are more efficient, transparent and resilient.
The first FMI Sandbox will be up and running this year. And as we learn from the outcomes of this flagship initiative, more can be established.
We’re looking forward to watching firms grow in the sandbox, moving on from buckets and spades to world beating technological tools.
We have recently published a wide-ranging consultation paper, setting out our proposals to establish a comprehensive framework for regulating cryptoasset activities in the UK, providing clarity for consumers and firms.
By capitalising on the potential benefits offered by crypto – and the underlying technology – we are strengthening our position as a world-leader in fintech and unlocking further growth opportunities and innovation.
And last month, the Treasury and the Bank of England issued a joint consultation on a potential digital pound in the UK.
This is a major milestone in our work in this area, marking the end of the research and exploration phase and the beginning of the design phase of work.
We are also taking forward other initiatives in the innovation space, such as the new Centre for Finance, Innovation and Technology – or CFIT -launched last week and backed by £5 million of Treasury seed funding. CFIT will champion the UK’s world-leading fintech sector, helping firms to create high-skilled jobs across the country and to achieve truly global scale.
Concluding remarks
Ladies and gentlemen, this is an exciting time.
We face challenges, yes.
But in confronting them we also find opportunity.
Opportunity to do things differently…
…to seize the moment…
…to make our country the world’s most competitive location for financial services.
It’s an ambitious, yet achievable agenda.
It will require our joint enterprise and industry.
But I know that together we can achieve great things. Thank you again for your welcome, and all that you do.
