By Karim Haji
The UK is attractive for investment because of the stability of our regulatory system – we shouldn’t lose the value of this for the sake of meeting artificial deadlines, writes Karim Haji
This week marks a year since the launch of the government’s Edinburgh Reforms – a bumper pack of regulatory measures designed to boost UK financial services competitiveness and ‘turbo charge’ long-term growth. Twelve months on and against a backdrop of ongoing concern for the UK’s position as a leading global financial centre, are the reforms delivering on their promise?
Many of the changes badged as Edinburgh Reforms were already in progress, but newly packaged under one heading. Nevertheless, the ambition and spirit of the reforms were broadly welcomed by the financial services industry, and progress has certainly been made, such as in the development of Solvency UK for our insurance market. Insurers have broadly welcomed improvements to the system, including Risk Margin reductions and plans to make it easier for foreign insurers to run branches in the UK. The government also successfully passed new laws for financial services, which bring in a secondary competitiveness objective for regulators and updated powers for regulators to deal with emerging risks and services.
While some complain that change is not happening quickly enough, part of the attractiveness of the UK is that our regulatory system is relatively stable and regulators consult widely on proposed changes. We shouldn’t lose the value of this for the sake of meeting artificial deadlines. More worrying can be the opposite; some feel the recent proposed changes to leaseholder reform have not been consulted on with the City, despite the significant investment consequences.
More broadly, we still hear arguments about both the volume and complexity of regulatory initiatives. As KPMG’s latest Regulatory Barometer demonstrates, the general quantum of regulatory pressure is significant and some of what is proposed is hard to link to the letter and spirit of the Edinburgh Reforms. There are concerns about the significant attention and expense required to make many of the changes.
While businesses will often see the benefit of a specific new regulation, they find that keeping up with this raft of regulations – from ESG requirements to capital and liquidity regulation – is increasingly challenging, especially across multiple jurisdictions. The regulators would argue that much of this is necessary to advance their primary objectives and ensure the safety and security of the UK’s financial system. They can be less keen to explain how they are meeting their new secondary objective on competitiveness.
It is clear the reforms will need to operate in an increasingly challenging global environment. Our recent global survey of chief executives found that they now rank geopoliticsand political uncertainty as the greatest risk to the growth of their business.
Against this environment, we all need to redouble our efforts to ensure the UK can stand out and protect its position on the global stage. Predictability and consistency in policymaking are two of the core ingredients to creating an environment in which markets feel comfortable and investors confident, and we have to reclaim this advantage for the UK.
A year on from the launch of the Edinburgh reforms, we can certainly point to progress and a promising direction of travel in establishing a new framework in which our regulators can do their job. The package of reforms is not – and should not be – static but it does have broad cross-party support which is important as we approach an election period.
The most effective regulation is often that which has buy-in from market participants who have helped shape how it is implemented. The more the UK can work together across government, regulators and the financial services sector, the stronger we will be.
