Introduction
Good morning, everyone. And thank you, of course, to Miles and TheCityUK for the opportunity to be here.
You don’t need me to remind you of the uniquely constructive role TheCityUK plays on behalf of this great industry.
I want to thank you, among many other things, for your forward-looking research.
And I note, for instance, your recent Six-point Plan for Growth for the Sector, and your statistics on financial services across the UK – which are invaluable for our understanding of the breadth and depth of this industry.
That’s particularly relevant because of where we are today.
Not too long ago we could have closed our eyes, taken a deep breath, and known for certain that we were in Auld Reekie.
The geographical giveaway these days is the sound of clicking of computer mice echoing from the offices of RBS, Standard Life, Baillie Gifford, Abrdn and Scottish Widows. And Blackrock, JP Morgan Chase, HSBC and more.
Because this city, as we all know, is a financial services powerhouse.
The second largest financial services cluster in the UK after London. More than 50,000 people – one seventh of the entire workforce – employed in banking, insurance and pensions, asset management and FinTech. And an increasingly important centre of excellence for sustainable finance and investment.
And to avoid accusations of favouritism, let me also praise Glasgow where recent growth in the sector has attracted global attention, and made it the third largest financial centre in the UK behind London and Edinburgh. While green finance credentials, the fintech cluster and a developed talent pool extend beyond Edinburgh and Glasgow to Perth, Stirling, Dundee and Aberdeen too.
Of course, this is nothing new. Scots and Scotland have been pioneering financial services for centuries.
Adam Smith gave us the intellectual framework. Nicknamed both ‘the Father of Economics’ and ‘the Father of Capitalism’, Smith is said to have expressed disappointment that he didn’t achieve more in life. Which seems a little bit harsh.
John Law – an inveterate gambler and duellist – dreamt up paper money… claiming – and I quote – that ‘I have discovered the secret of the philosopher’s stone: it is to make gold out of paper’.
Robert Wallace and Alexander Walker – presbyterian clergymen both, and founders, of course, of what became Scottish Widows – created the first insurance fund, based on actuarial and financial principles rather than mercantile gambling.
Robert Fleming, of the eponymous bank, left school at 13 – not that I’m advocating that – and went on to become one of the world’s leading investors and pioneer of investment trusts.
You get the point. For whatever reason – and I suspect there are many – Scotland has been at the leading edge of this intellectually and practically for a long time.
Financial services and the Union
The larger point here is that it’s no coincidence that Scotland and the UK’s financial services industry have evolved – and thrived – together over the last two centuries.
That’s just one of the countless reasons why I’m a Unionist – and why this Government is utterly committed to bolstering the Union.
And, by the way, the Autumn Statement of a fortnight ago made good on that commitment by boosting UK-wide devolved administration funding by £3.4 billion over 2023-4 and 2024-5.
But I don’t want this to be a political speech. I want it to be a celebration of this extraordinary industry, and clear statement of intent regarding the future.
If you can’t tell, I am determined to do everything I can to help this industry succeed. And I share that determination with the occupants of both Number Ten and Number Eleven Downing Street.
And given the contribution you already make to the UK, why wouldn’t we feel that way?
One pound of every ten of the UK’s economic output – a higher proportion than in France, Germany or the US. Hundreds of thousands of jobs. Billions in taxes supporting our vital public services.
And while I may be the City Minister, that doesn’t just mean the City of London. Yes, it’s Edinburgh and Glasgow and Aberdeen. But it’s Manchester, Cardiff, Belfast, Newcastle and Birmingham too. Because two-thirds of financial services jobs are outside London, serving vast numbers of people who’ve never even set foot in the Square Mile.
The government’s ambition
As an industry, you are at the forefront of our minds.
When we ask ourselves what, in a globally competitive marketplace, we want to be good at, you are a huge part of the answer.
The big picture ambition is straightforward: financial stability, fiscal sustainability and growth.
In the Autumn Statement, the Chancellor outlined five areas for growth: digital technology, life sciences, green industries, advanced manufacturing and financial services. And, when you think about it, even the first four of those rely on financial services – for their day-to-day operations as well as investment capital.
On the bank surcharge, the Autumn Statement confirmed the position we announced last year, underlining the government’s commitment to maintaining competitiveness and encouraging growth within the banking market.
We also published a consultation response setting out the final policy approach on Solvency II. This will deliver a more tailored, clearer and simpler regulatory regime, better suited to the unique features of the UK market.
The reforms we’re making are as follows: cutting the risk margin significantly, with a 65% cut for long-term life insurers; maintaining the existing fundamental spread; increasing investment flexibility by overhauling matching adjustment eligibility rules; and slashing red tape.
The ABI have said the reforms we have made could unlock over £100 billion from UK insurers for productive investment.
On that note, we’ve also listened to industry’s proposals, and created the Long-Term Asset Fund to help unlock access to long-term illiquid assets.
We believe that’ll mean a significant boost to the productive capacity of the UK economy – including much-needed infrastructure and decarbonisation products.
Long-term investments in illiquid assets can be an incredibly important part of a portfolio. A regulatory environment that is too focused on short-term, liquid assets or low costs at the expense of quality is a problem.
Another positive with that, of course, is helping pension savers to diversify their investments, and access higher long-term returns.
I should also say that the work on LTAFs is best understood in the context of wider work on the UK funds regime review, which seeks to make the UK a more attractive location for funds domicile.
I’ve been really keen for some time to see the launch of the first LTAFs. And am delighted to reveal today that the first firm has submitted an LTAF application to the Financial Conduct Authority.
My personal view is that good decision-making is sometimes about appropriate risk-taking. In government we should take calculated risks – to get the very best outcomes for the people of this country. And I celebrate those who do the same in business.
Refining ESG
Another thing I’d flag is the fact that we’re introducing new sustainability disclosure requirements which take a climate-first approach to sustainability reporting, in turn helping people to make informed investment decisions. We will do this in a proportionate and UK-tailored manner while in step with international standards.
The FSM Bill
Part of the context for all our efforts to boost the sector is, of course, our departure from the European Union.
And we’re seizing related opportunities there too.
That’s the point of the Financial Services and Markets Bill which is making its way through Parliament more-or-less as I speak.
The headline goals are tailoring financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre, while delivering better outcomes for consumers and businesses.
You’ll be pleased to know that I’m not going to take you through every sub-clause of the Bill – that’s available on Parliament TV if you’re interested – but let me at least sketch out the most salient points.
First, the implementation of the Future Regulatory Framework Review – with new objectives for the regulators to facilitate growth and competitiveness, and the repeal of retained EU law to enable reforms to key areas of financial services regulation, including Solvency II and MiFID. The result will be a comprehensive, domestic model of regulation.
Second, harnessing new technologies safely and responsibly. With an FMI Sandbox to facilitate experimentation and the development of best practice.
Third, we’re implementing the outcomes of the Wholesale Markets Review – removing unnecessary restrictions on where and how trading can happen whilst maintaining high standards of regulation.
I also want to take this opportunity to reiterate the government’s commitment to taking forward the recommendations from Mark Austin’s Secondary Capital Raising Review.
The Treasury is working with BEIS on these recommendations and on reforms to corporate governance more broadly. This will help to enhance the international competitiveness of UK capital markets and support the growth ambitions of companies listed on them.
In addition, you may have noticed that the PRA published their consultation yesterday on their proposals to implement the remaining post-financial crisis banking reforms known as Basel 3.1.
In parallel, the government has also published its own consultation on the Basel 3.1 reforms… setting out the legal changes we’re considering, and seeking views on improving aspects of the Capital Requirements Regulation, particularly in terms of equivalence, resolution and overseas exchanges.
This is a huge package of reforms, which we know will have far reaching impacts and so we ask you to please continue to engage with both the PRA and the Treasury on these important issues. As ever, we want your insights and your advice.
Let me also just say a few words about the powers of the financial services regulators, who do a fantastic job.
The government is absolutely committed to their operational independence.
We were considering the introduction of a so-called ‘Intervention Power’ in the Financial Services and Markets Bill. But last week decided not to proceed with the Intervention Power.
Our view, in short, is that existing provisions in the Bill are sufficient to allow the UK to seize the opportunities of Brexit, by tailoring financial services regulation to UK markets to bolster our competitiveness.
We are also using the Bill to strengthen our already high standards for Central Counterparties – or CCPs – ensuring the Bank of England, have the powers they need to determine the regulatory standards for these firms and also upgrading our resolution regime.
We are making changes to ensure that the UK remains an open, global financial centre for clearing. In fact, just yesterday a statutory instrument was laid in Parliament extending two transitional regimes for overseas central counterparties, or CCPs.
Two years ago, the Prime Minister told a Mansion House audience that the UK already had “one of the world’s most robust regulatory regimes for central counterparties.”
He also said that there was “no reason of substance why the UK cannot or should not continue to provide clearing services for countries in the EU and around the world”.
And that is as true today as when he said it.
The opportunity
Ladies and Gentlemen,
That’s a lot of hard graft done already – and I want to thank colleagues at the Treasury and across the industry for getting us this far.
But let me be clear that we’re only just getting started.
Our goal, plain and simple, is to be home to the most open, well-regulated and technologically advanced capital markets in the world.
We want to reposition financial services for a time of great change so that they can contribute even more to this country’s long-term prospects.
That’ll mean, for instance, a further package of reforms repealing EU law, and replacing it with rules tailor-made for how things are done here.
It doesn’t mean deregulation for deregulation’s sake but it will mean selectively looking for ways we can use our freedoms to be more agile and competitive.
I’m incredibly excited about what we can achieve.
We think it is only by expanding our ties with markets around the world – from the most advanced to the fastest -growing – that we boost growth and productivity here at home.
The UK has an abiding interest in a prosperous and productive Europe, with many shared interests, and we continue to have valuable relationships with our EU partners.
But the success of Brexit has given us a clear opportunity to strengthen ties with advanced markets beyond Europe, from the US to Singapore, Japan to Australia.
At the same time, we need to deepen links with the fastest growing markets across Asia, Africa and Latin America. Links that will have an important impact on the UK’s future prosperity.
Our proposition is to increase the range of markets and consumers that benefit from the UK’s innovative financial services offering – including by looking to the markets of the future.
Fintech and crypto
The government is also committed to retaining the country’s global leadership position in fintech.
In the first half of this year, investment in the sector was a record £7.8 billion, 24% up on the same period last year. Meaning, in turn, that fintechs in the UK attracted more funding than the rest of Europe combined.
There’s also, of course, the opportunities presented by distributed ledger technology and blockchain.
You may have heard my predecessor, John Glen, setting out our ambitions on crypto in April.
He said this: “If crypto-technologies are going to be a big part of the future, then we – the UK – want to be in on the ground floor.”
We’re driving forward this agenda and I continue to chair the crypto-engagement group to hear from industry and share progress.
Yes, there are questions about the future of crypto – but we’d be foolish to ignore the potential of the underlying technology. For me, recent events in the crypto market reinforce the case for timely, clear and effective regulation.
The Financial Services and Markets Bill already enables us to establish a framework for regulating cryptoassets and stablecoins in the UK, and we will be consulting on a world-leading regime for the rest of the cryptoasset market later this year.
Financial education
Another thing I wanted to touch on is financial education. It’s away from the everyday hustle and bustle of the financial markets, but an important element of the path to sustainable success.
According to the Money and Pensions Services’ UK Strategy for Financial Wellbeing, more than five million children ‘do not get a meaningful financial education’. While ‘poor financial wellbeing, affecting tens of millions of people, is holding the UK back’.
We’re already committed to increasing the number of children and young people receiving meaningful financial education, as MAPS’ five-point plan to improve the UK’s financial wellbeing by 2030.
Our view is also that the better our young people understand finances early on, the more likely they are to be able to make a professional contribution to this industry later in life.
Conclusion
Ladies and Gentlemen,
I hope you’ll agree with me that that’s a pretty full slate of activity – and a clear statement of our ambition for financial services.
The story of UK financial services – so much of it written here in Scotland – is already dynamic and proud.
We have everything we need to thrive long into the future: the talent, the experience and the ambition.
I’m excited by that. And I am thrilled to be on this journey with you.
Thank you very much.
