Tag: Speeches

The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 6 July 2011.

Thank you for inviting me to speak here today a little over a year since we first came to Government.

And a year on from inheriting a rather unenviable economic situation.

The largest peace time deficit on record

An unbalanced economy still jittering from the crisis

And a financial sector climbing a steep path to recovery, but hindered by vast regulatory uncertainty.

The last twelve months however have given us cause for cautious optimism.

The budget deficit is falling from its record highs.

Output is growing as we rebalance away from debt-fuelled consumption to investment and export

Half a million new private sector jobs have been created in the last year – and that includes an extra 25,000 jobs in the Square Mile alone.

And we have set in motion some of the biggest ever changes to regulation of our financial sector to set the foundations of a more stable economy.

But herein lies the challenge. As the Chancellor said in his Mansion House speech two weeks ago, we have to confront the “British dilemma”.

As a global financial centre that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interests.

But, whilst we strive for global success in financial services, it’s clear that success should not come at the cost of wider economic stability.

We have to answer how we can create a successful, competitive and stable financial services sector.

And added to that we need a financial sector that earns the trust of its consumers.

What is often missed in the account of the financial crisis, is that it was also a crisis of trust between consumers and the financial system.

Before the crisis, consumers fell prey to predatory practices of some banks, such as mis-selling of Payment Protection Insurance; during the crisis consumers lived in fear of losing their lifelong savings; and now consumers often feel that banks are unfairly refusing credit, altering fees, or changing overdraft facilities.

As we emerge from the shadow of the financial crisis, we have an opportunity to tackle this crisis of trust. To reshape financial services for the future. To forge a system that is stable, competitive, and fair for consumers.

And in the last year we have already made significant progress towards that goal.

Independent Commission on banking

On coming to Government we established the Independent Commission on Banking to consider structural and non-structural reforms to the UK banking sector to promote financial stability and competition. In April it produced its Interim Report. A hugely valuable contribution to the domestic and international debate on regulatory reform.

As the Chancellor said in his Mansion House speech we accept in principle the two key recommendations of the report.

Bail-in instead of bail-out – so that private investors, not taxpayers bear the losses if things go wrong

And a ring fence around better capitalised high street banks to make them safer, and to protect their vital services to the economy if things go wrong.

Of course the Commission will produce its final report in September, and we look forward to its final recommendations.

Domestic regulatory reform: macro – and mirco-prudential regulation

In the mean time we have also embarked on fundamental reform of our domestic regulatory system.

It was the failure to foresee and prevent the crisis that has undermined trust in the sector of course, but also in the regulatory authorities. The tripartite system failed spectacularly in its responsibility to monitor and mitigate the systemic risks before the crisis. We are addressing these failures.

We are establishing a permanent Financial Policy Committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and stop excessive levels of leverage before it’s too late.

We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. It will bring judgement to the vital task of regulating the soundness of individual firms that manage risk on their balance sheet. We are ending the tick box culture that dominated the tripartite system of regulation.

Three weeks ago the Interim FPC met for the first time, followed by the publication of the latest Bank of England Financial Stability Report. Both warned of continued sovereign and banking strains stemming from the Euro area and urged banks to use periods of strong earnings to store capital and build resilience against these risks.

These changes to regulatory supervision are essential to ensure that we more effectively monitor and address micro and macro prudential risks. They go a long way to regaining the trust of consumers in banks and the regulators.

Consumer at heart of regulation

But we need to go further. We have to place the consumer at the very heart of the regulatory system. Effective prudential regulation alone is not enough to deliver optimal outcomes for consumers.

In order to deliver the best outcomes for people, businesses and the economy, we need three further things:

Firstly, a competitive market that delivers efficient prices, a diversity of providers and products, and the innovative provision of new products and services that meet consumer needs

Secondly, consumers with the capability to engage with the financial system and take responsibility for their actions

Thirdly, consumers that are supported by robust, fair and proportionate consumer protection measures which build confidence in the financial services industry

Competition. Capability. Confidence.

We are embedding this ethos in the new regulatory framework.

And the new Financial Conduct Authority will be central to this.

As the new conduct regulator, it will have the single strategic objective to protect and enhance confidence in the UK financial system.

It will do this by promoting efficiency and choice, the bedrock of a competitive market….securing appropriate protection for consumers…and protecting and enhancing the integrity of the financial system.

Competition

Overlaying this, the FCA will also be under a statutory duty to promote competition, as it exercises its general functions.

Competition is vital to driving better outcomes for consumers and we fully expect that the FCA will be pro-active in executing this duty.

We expect the FCA to pro-actively increase transparency and disclosure across financial markets.

And in the future I would fully expect that the FCA to take the lead when it comes to tackling competition issues that cause consumer detriment.

Taking the example of payment protection insurance (PPI). In this scenario the stronger competition duty and powers we envisage for the FCA would have allowed it to take targeted action to intervene swiftly, and tackle head on the ‘point of sale advantage’ that credit providers had.

In other cases, where the FCA identifies a structural competition issue of concern, we are also providing the FCA with the power to initiate a referral to the OFT. And we are putting a duty on the OFT to set out its response. In this way, we believe the FCA and the OFT’s roles will complement each other in future, improving competition and outcomes for consumers.

Capability

But competition alone is not sufficient to deliver better consumer outcomes. We also need consumer capability and confidence.

Taking consumer capability first, it is vital that consumers have the capacity to take positive control of their finances, make educated financial decisions for themselves, take a more active role in managing their financial affairs.

Continued disengagement from the financial world threatens to leave many people unprepared for the unexpected or for later life – but it also risks exposing many customers to unresponsive financial services firms insufficiently focussed on their customers’ needs.

And we are tackling this head on. Only three weeks ago I spoke at the launch of the Money Advice Service, set up by government, which offers free and impartial financial advice to consumers – to help them take charge of their personal finances and play a more proactive role in the market.

It will help many people start to save or invest for the first time, but it will also help people get a better deal as more demanding, better informed customers.

At the same time, we have consulted on developing a new suite of simple financial products. Products that consumers can easily understand and that set the benchmark by which to compare other products and brands in the market. Products that should be aimed at the mass market, that should be available without regulated advice, that help people make sense of the market. And I will be announcing next steps on simple products shortly.

Confidence

But even with greater competition and greater consumer capability, there will be instances where we need to go further to deliver optimal consumer outcomes.

Competition and consumer capability needs to be buttressed by protection.

As such the FCA will have a clear objective to secure protection for consumers.

To that end the FCA will have a new power to publish the fact that it has taken action against a misleading or inaccurate financial advertisement.

The FCA will also have the power to ban products or to restrict certain product features. Again, looking back at the PPI, in a similar situation, the FCA would have the tools and authority to prohibit the selling of PPI products, such as the single premium PPI, until firms redesigned them and demonstrated that they could sell them safely.

This new power will enable the FCA to intervene more quickly and decisively where it spots a problem by imposing a temporary ban with immediate effect for up to 12 months. It will also enable the FCA to render unenforceable any contracts made in breach of the ban.

And we are also providing the FCA with the power to disclose the fact that it is taking disciplinary action against a firm or individual.

This new approach will act as a significant deterrent to firms and help establish best practice.

We have faced strong resistance from the industry on these proposals, but we will not shift.

These changes are absolutely essential if we are to deliver a real change in the conduct of regulated firms, instil greater confidence in financial products and services, and incentivise financial institutions to think of their consumers first. Of course, however, we are building necessary safeguards on the use of these powers to ensure that they are used appropriately.

We also want to see improvements in the market for consumer credit. In December last year the Treasury and the Department for Business, Innovation and Skills published a joint consultation on transferring responsibility for consumer credit regulation from the Office of Fair Trading to the FCA.

We believe bringing consumer credit into the same regulatory regime as other retail financial services can deliver strong protections for consumers; remove duplication and burdens on business; and improve market oversight.

Looking beyond regulation, both Departments are also carrying out a joint review of consumer credit and personal insolvency to ensure that we have a framework that is fair to consumers and fair to the industry. This review takes a broad scope looking at advertising of consumer credit, store cards, bank charges, and also covers all aspects of the consumer credit lifecycle, from the decision to take out a loan through to its redemption, including what happens when things go wrong.

We will publish summaries of the responses that we have received to both the review and the consumer credit consultation before the end of the month. The Government’s response, and our decision on the most appropriate regime for consumer credit, will follow later in the year.

With such a transformed regulatory environment it is important that the regulatory and advisory bodies work together to protect consumer outcomes. We are putting measures in place to ensure that the FCA will take into account information provided by the Financial Ombudsman Service and the Money Advice Service. And so that the Ombudsman Service can communicate it concerns about a product or service as clearly as necessary, we are also permitting it to publish determinations where it considers it appropriate.

None of these changes however, absolve individual firms of responsibility for the products they offer. The fact that a product has not been banned will not constitute a stamp of approval. Just as we want consumers to be able to take responsibility for their decisions, firms must remain accountable for their actions.

There remains the risk that the FCA won’t be able to prevent all conduct failings. And in those instances we need to ensure that the matter is handled decisively and efficiently by the regulator. We must ensure that we learn the lessons of the years of uncertainty for consumers – as was the case with mis-sold Payment Protection Insurance.

We are entrenching greater clarity and transparency in the redress process to ensure that the FCA really grasps the issue promptly and effectively, and provides consumers with confidence that they will receive swift, fair and consistent redress.

Conclusions

We have come a long way in a year, to answer the British Dilemma that I referred to at the start. We are reforming regulation of the financial sector create a market that:

Underpins a more stable economy.

Supports a wider economic recovery.

Delivers the best outcomes for consumers.

It’s in all our interests to have a safer, more secure and more resilient financial sector motivated by sustainability, stability and consumer welfare.

Last month, we put out our blueprint for reform and draft legislation for further consultation and pre-legislative scrutiny. And this week, we published a consolidated version of the Financial Services and Market Act as amended by our draft legislation.

I look forward to your continued input as we implement our reforms.

The engagement and ideas of those companies and organisations represented in the room tonight is critical to the success of this new framework.

We need to get this right today, to avoid another crisis tomorrow.

Thank you.

The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 30 June 2011.

Introduction

It’s a pleasure to speak with you today about the challenges and opportunities that confront the Insurance Industry. As with the entire financial sector, the Insurance industry faces an unprecedented period of regulatory overhaul and economic uncertainty.

But we know that we are starting from a strong base.

Indeed, the UK insurance industry accounts for almost a third of all financial service jobs in the UK.

It controls over 13% of investments in the London stock market, which is more than held by pension funds, and significantly more than held by banks. It is the largest insurance centre in Europe, the third largest in the world, and accounts for 8% of total worldwide premium income.

This isn’t a position that the industry has earned overnight, nor is it a position that we are entitled to as a result of past triumphs.

Rather, it takes innovation and adaptation to stay ahead of the game…

But if London is to remain the best place to do business, then as markets, products and services evolve, regulation must evolve as well.

The financial sector and the economy are still in the midst of a delicate recovery following the recent crisis.

As we grow our economy and we reform our financial services, we are caught in what the Chancellor described in his Mansion House speech as “the British dilemma”.

One the one hand we want a strong, vibrant and successful financial sector to support economic growth and provide thousands of jobs across the country. On the other hand we cannot afford the sector to pose a risk to the stability and prosperity of the nation’s entire economy,

The last financial crisis cost the taxpayer billions of pounds.

But this is a situation that we cannot afford to repeat.

Or course, we’re all aware that the last crisis was one of investment and retail banking excess and domestic and international regulatory failure.

Though in the last crisis, the Insurance industry wasn’t directly implicated and came out relatively unscathed…it is not entirely immune.

Regulation of the financial system as a whole, needs to change.

Domestic regulation

It was the failure to foresee and prevent the crisis that has undermined trust in the sector of course, but also in the regulatory authorities. The tripartite system failed spectacularly in its responsibility to monitor and mitigate the systemic risks before the crisis. We are addressing these failures.

We are establishing a permanent Financial Policy Committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and stop excessive levels of leverage before it’s too late.

We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. It will bring judgement to the vital task of regulating the soundness of individual firms that manage risk on their balance sheet, particularly banks and insurance companies.

But we recognise, of course, that banks and insurers engage in very different types of business. The inherent characteristics of an insurance business model are different to those within a bank’s. This is why we are proposing to provide the PRA with a specific statutory objective for its insurance responsibilities. Insurance regulation will not take a back seat to deposit-taker regulation in the PRA.

Last week the FSA published the PRA Insurance Regulation document providing more information on the future regulatory approach in that sector. In particular, and in response to concerns expressed by industry stakeholders, the PRA will have a dedicated mutuals supervisory team in order to develop specialist expertise in the sector.

The PRA will also be responsible for securing appropriate protection of policy holder expectations with respect to with-profit policies. Balancing the insurance objectives of policyholder protection and general objective of firm financial soundness.

More widely, the new Financial Conduct Authority will play a critical role in consumer protection. Its single strategic objective will be to protect and enhance confidence in the UK financial system.

In that role, the FCA will oversee the conduct of financial services firms, the operation of markets and the protection of consumers with new powers to ban the sale of toxic products.

We recently issued the White Paper and draft legislation on these reforms. It is absolutely vital that we get these reforms right. We need a financial sector that continues to propel growth but doesn’t put our stability at risk.

But we can only get there through your help. I encourage you to work with Treasury officials as we consult on the White Paper and draft legislation.

International regulation

But of course domestic regulation is not enough. Financial services are a truly international industry, and regulation needs to reflect that fact.

There is a great deal of work happening at the European level as you are already aware.

Firstly, I want to touch on the ECJ Test Achats case. A burning issue no doubt for many of you.

As the Government has said before, we are extremely disappointed by this decision, but there is no right of appeal. The judgement goes against the grain of a common sense approach to equality. Of course, nobody should be treated unfairly simple because of their gender, but financial services providers should be allowed to make financial decisions on the basis of sound analysis of risk factors, including gender.

However, we need to abide by the ECJ ruling so this morning I have announced the Government’s position on the Judgment. It is our view that the judgement only applies to new contracts for insurance and related financial services entered into on or after the 21 December 2012. That means, that any contracts with gender-sensitive pricing of premiums and benefits concluded ahead of that date, can continue unchanged after that date.

Early indications are that this is an interpretation shared across Europe. That said, we fully understand the need for legal certainty. The European Commission has already said it will issue guidance on the interpretation of the judgement, and we welcome this step. However, we are continuing to press the Commission to make an amendment to the Gender Directive to give legislative effect to the judgement

Elsewhere in Europe, we have the important role of the new European Insurance and Occupational Pensions Authority.

We are keen to work with EIOPA as it develops, and ensure that it delivers higher and consistent standards of supervision across the EU, and most importantly of all, helps create a level playing field across Europe.

By doing so, EIOPA can take a major step in completing a single market in insurance, creating new international opportunities for the UK sector.

Of course, however, the big ticket item is Solvency 2.

Solvency 2 is vital to creating a deeper, single EU insurance market and helping to drive a more competitive and sustainable industry. Through Solvency 2 we must ensure that we deliver proportionate and risk based regulation, and do not arbitrarily raise requirements in a knee-jerk response to the last crisis.

We have worked with the industry to identify the top priority issues for the UK, and to broker a sensible deal with the European Commission and other member states on these issues.

We have made great progress. Not least by securing recognition across Europe that helping the industry to maintain its role as a stable long-term investor is critical to long-term economic growth. The Commission’s proposal for a Matching Premium for UK annuities will be key to this.

But the debate is not over, and we need to sustain our efforts over the next few months. I encourage you to stay engage in this debate.

It is only through your engagement that we can build the solid evidence to base future regulation. It is only through such evidence that we can ensure that we implement regulation that is credible, effective and proportionate.

And we’ve already seen how constructive engagement can be through our parallel reforms to the tax system. In particular, I know many in the Insurance sector have keenly followed our reforms to introduce an opt-in exemption from corporate tax for the profits of foreign branches of UK companies. This will make the UK a more attractive location for the headquarters of pan-European insurers. This change is a vital part of a shift to a more territorial system of taxation, reflecting the fact that UK business has become more internationally diverse.

Ultimately if we fail to get regulation, and taxation, right for the Insurance secor, it won’t simply be to the detriment of the industry, it will be to the detriment of the wider economy.

It will impact on bank funding, on infrastructure investment, and it will impact directly on people across the country through their savings and their pensions.

Savings and investment

All of you present know how intertwined the Insurance industry is with the country’s savings habits. And as a Government we are committed to tackling the chronic lack of savings that preceded the financial crisis.

Before the financial crisis, one in four households had no liquid savings

UK household debt was almost 100% of GDP compared to 61% in Germany and 50% in France

And even today, almost 60% of people do not have a pension.

Instead, we want to build an economy more strongly built on the back of savings and investment. We are creating the right conditions to support higher savings across the board.

By introducing a duty of automatic-enrolment on employers, more employees will qualify for a minimum quality pension scheme from 2012. That means another 4 to 8 million people can start saving, or can save more into a workplace pension scheme. And I know that this is something that the ABI have broadly welcomed.

We have also removed the outdated requirement to annuitise by the age of 75, thereby giving people more choice and flexibility over how to use their savings.

We are committed to ensuring that a greater and broader spectrum of society have the opportunities, capacity and trust in the system to take personal responsibility for saving.

We have launched the Money Advice Service to ensure consumers have the skills and understanding to engage with the system. And I have to take this opportunity to thank Otto for all his work on this agenda and all the support he has provided to the Treasury.

And, we are consulting on the development of simple financial products to ensure consumers have choice and confidence in their investments.

Our goal is a savings landscape that creates the incentives for people to address their security and protection needs. Our challenge to you is how will you meet these needs?

Conclusion

I’m sure you’ll agree that we’ve come a long way in just a year. A long way to rebalancing our economy away from debt-fuelled consumption, to more prudent saving.

And a long way to reaching a much needed settlement to the “British dilemma” and the role of the financial sector in our wider economy.

We still have a long way to go and we are continuing to work tirelessly on domestic and international reform.

It is in everyone’s interest that we get these reforms right. And tt is vital that we continue to work with the industry, including those of you present today, to do so. I look forward to working with you in the years to come.

The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 9 June 2011.

Introduction

Since building work began on the Mansion House in 1739, Monarchs, Prime Ministers and even Lord Mayors have come and gone, but this building still stands in the heart of the world’s global financial centre.

Many have contested London’s claim to be the global financial centre, but none have been successful. London and the UK’s continued pre-eminence has not been through luck or through entitlement, but has been a consequence of the ability of the financial services sector to exploit new opportunities, new markets, new products- meeting the needs of investor, firms and consumers as they arise. It is innovation and adaptation and not luck nor fate that lies at the heart of our prominent position.

Our challenge today is how to make sure that the UK and particularly the asset management sector adapts and innovates to remain a world leader.

Fund management accounted for almost 1% of UK GDP in 2009, provided employment for over 50,000 people, and over a half of all UK households’ investments and pensions are looked after by the fund management industry.

By international comparison, the UK is one of the largest markets in the world for fund management. Assets managed by the UK fund management industry total over £4 trillion. Only the US surpasses this figure.

The UK remains a premier centre for fund management because of our proportionate regulatory framework, our range of efficient fund structures, and our highly skilled and highly professional workforce.

The Government’s plan for growth, announced in March 2011, seeks to build on these strong foundations. We are removing the barriers to enterprise, we are creating the most competitive tax system in the G20, and we are creating a more educated workforce. These changes are the bedrock for economic growth, and a springboard for our financial services.

We cannot be complacent. Our history does not give us an entitlement to remain a successful global financial centre.

It takes innovation and adaptation to stay ahead of the game. There was a time when we had jobbers and brokers literally running from one another to execute trades. Competition would revolve around who could be closest to telegraph machines to get the latest news on developments on South African goldmines or American railways and use this knowledge to make a profit before news spread

Technology has changed.

Today, it takes a split second to execute a trade, as we increasingly shift to a world of automated and computerised trading.

Where High Frequency Traders jostle to be the closest to servers to use a nanosecond’s advantage to make a profit before information spreads widely.

But if London is to remain the best place to do business, then as markets, products and services evolve, regulation must evolve too.

To ensure that we maintain our competitive edge to protect the integrity of markets and to ensure we are secure against new risks.

Financial crisis and reg reform

Indeed, we are still emerging from the shadow of the biggest financial crisis in almost 100 years. A crisis that necessitated unprecedented Government intervention to save the system from itself….and from total collapse.

But this is a situation that we cannot afford to repeat.

We are pursuing an ambitious agenda of regulatory and market reforms to ensure that is the case.

Markets change and regulation must keep pace.

But herein lies the challenge.

How do we ensure that we implement regulation, that is proportionate and sustainable?

How do we ensure that reforms lead to a more resilient, stable and sustainable financial sector that reinforces rather than undermines economic growth?

We must not succumb to regulation that stifles the competition, innovation, and openness that have made the UK a leading global financial centre.

But consumers must have confidence that when they enter into financial transactions with regulated firms, those firms will conduct themselves appropriately. This is why the Government is creating a new dedicated and specialist conduct regulator, the Financial Conduct Authority.

The FCA will have new powers to protect consumers and enhance confidence, including a new product intervention power. I think with, for example, the growth of structured products, this power will better enable the regulator to tackle problems earlier, before they give rise to widespread consumer detriment, resulting in costly redress payments and reputational damage to the industry.

But product intervention is only a complement to, and not a substitute for, consumer protections around the point of sale. And the FCA must use its new power appropriately and proportionately. The expertise in, and the responsibility for, designing products which meet the needs of consumers and distributing them appropriately ultimately lies with you: the industry.

Of course, action at a domestic level will not be enough. Financial services are a truly global industry and regulation must reflect that fact.

There are already a host of financial services directives being negotiated or implemented in Europe, a feast of acronyms…EMIR, MiFID, UCITS, AIFMD…We also need to make sure that this balance – between openness and opportunity and consumer protection – is also struck at the European level.

European Regulation

And we have already fought this battle on the Alternative Investment Fund Managers Directive.

In just a few short months we successfully negotiated a complete reversal of the Council’s position on the directive, as a result of credible, evidence based arguments, developed through engagement with industry.

We insisted that the Directive must be internationally consistent and non-discriminatory.

As we respond to changing financial markets, we must continue to ensure that regulation is in the best interests of financial consumers and investors, in the best interests of London as a financial centre, and in the best interest of the single market.

This is especially the case in the ongoing MiFID review. Markets have developed significantly since MiFID was originally enacted and it is right to look at how we respond these developments.

The issue of High Frequency Trading and Dark Pools is a prime example. Unfortunately ‘Flash Crash’ has a perfect media ring to it and provides the perfect clarion call for a host of commentators and politicians demanding tighter regulation of those markets.

However, we must be careful not to implement regulation where there is no robust evidence base to the detriment of liquid and efficient markets.

To that end, the Government has established a Foresight project to undertake a detailed assessment of how these markets may evolve and how this will affect financial stability and competition.

Arbitrarily reducing trading options now, will prove more costly in the long run. Through greater use of technology – and proportionate and effective regulation – the Single Market has the potential to become even more integrated.

It’s true that we still remain a long way off realising the full potential of a single capital market. There remain a number of barriers to this goal…but, we have an opportunity to make progress in this area through the proposals for Central Securities Depositories to establish common standards for Settlement Systems, and also through the Securities Law Directive by harmonising investor protections and rights.

But we also have to ensure that we do not erect new barriers in our haste to regulate after the crisis.

In EMIR we believe that the clearing obligation and obligation to report trades must apply to all derivatives, not just OTC. But at the same time, we don’t want to stifle markets or create monopolies in clearing houses. Instead, we have to ensure harmonisation of operational standards of Central Counterparties to facilitate competition, reduce costs, and improve service quality.

Evidence Base

If we are to demonstrate that reforms are in Europe’s best interest, we need regulations that are proportionate and founded on evidence, not whims.

We need to drive regulation through the quality of our evidence rather than the quantity of our bluster.

The European debate over corporate governance and stewardship is a case in point. The UK was early in assessing the implications of the crisis and putting this analysis into the public domain. It showed the need to enhance, not replace, the UK’s comply-or-explain based model. But despite this, there are still some in Europe with doubts. More evidence is needed.

But I recognise that the Government cannot build this evidence, nor win the argument, by working in isolation – we need your help, your advice and your evidence to drive change forward. We need the help and support of the buy side because you are uniquely placed to tell us how much these reforms will cost our pension funds and our equity ISAs.

The buy side can be a powerful voice in establishing the link between market reform and consumers, as well as making sure that proposed interventions are robustly justified by evidence. I would encourage you to continue to collectively engage in Europe and work with European partners where it is most effective to do so.

Engagement

Ultimately, we are at our most effective when Government, the industry, and its customers share the same goals and approach.

That’s why, we have already convened several industry expert groups to ensure that we have a full understanding of the potential impacts of various Commission proposals on regulation, and also how we can bolster UK competitiveness through tax and regulation.

Officials in the Treasury have already met with over 100 firms from the buy and sell side to discuss the major directives.

UCITS and tax transparent funds

It is as a direct consequence of our work together that we are driving through a number of changes to maintain the UK’s lead as a centre for asset management.

We are already working with the industry to make sure that the tax treatment of offshore funds, investment trusts and OEICS are updated so that UK fund management can remain competitive with other jurisdictions.

At the European level, we have already seen proactive and concerted engagement bear fruit with respect to the UCITS directive.

As you are aware, UCITS IV introduces new opportunities, particularly with the Management Company Passport and Master Feeder structures.

It is as a result of your input and suggestions that we are introducing changes to enable the UK industry to take advantage of these opportunities.

We are amending tax law to accommodate the conditions introduced by the Management Company Passport. Removing any risk that a foreign UCITS fund may become taxable in the UK as a result of having a manager resident in this country.

Without this change UK resident managers would be placed at a competitive disadvantage compared to their overseas counterparts both in expanding their business and in retaining current business where management is consolidated.

The Government also wants the UK to be the home for Master funds, and to do this we want to develop the most suitable vehicle working with industry to meet the real demand for a tax-transparent vehicle in Britain.

This year’s Budget announced that the Government will legislate to introduce a Tax Transparent Fund, from 2012.

Since the Budget, the Government has been working with industry to establish the areas for consideration in our forthcoming consultation. We will publish details of our consultation on Tax Transparent Funds tomorrow, but I can announce tonight that in order to allow more time for detailed consultation but also to bring these funds in on schedule, we have decided to bring them by regulation rather than Finance Bill.

This approach will allow for an extended period for consideration with industry – ultimately developing a better regime

Conclusion

As the investment management sector changes, we need to make sure that regulation- both domestic and European- keeps pace. This does require a partnership with the industry: Government and regulators need to understand the challenge you face and you need to understand where there are constraints.

But I am confident that together we can produce better services, better tax and better regulatory frameworks which together will deliver what we are all here to do- secure better returns for investors.

Thank you.