Labour’s Plans for Financial Services Regulation: A Comprehensive Overview

Authors:

Chris Chapman, Lauren Howells: Labour’s Plans for Financial Services Regulation: What We Know | Insights | Mayer Brown

Introduction

Labour has achieved a landslide victory in the recent general election, securing 412 seats. This article explores Labour’s plans for financial services regulation, drawing from their manifesto and other publications to provide insights into their future regulatory strategies. We will analyse Labour’s statements and discuss potential implications for the financial services sector.

The Significance of Financial Services

Labour recognises the financial services sector as one of Britain’s greatest success stories. Their manifesto and the January 2024 publication, Financing Growth: Labour’s Plan for Financial Services (“Financing Growth”), emphasise the sector’s importance and Labour’s commitment to supporting it. Key points include:

Championing the financial services sector as a cornerstone of the UK’s economy.
A commitment to stability, predictability, and balanced regulation.
Ensuring a regulatory environment that fosters competitiveness and growth.

Labour aims to position the financial services sector as the engine of growth in the UK economy, leveraging the country’s strengths in green finance and innovation.

Relations with Europe

Labour’s manifesto clarifies their stance on Brexit, ruling out a return to the single market, customs union, or freedom of movement. Instead, Labour seeks to deepen ties with Europe through:

Enhancing the UK-EU Financial Services MoU.
Securing mutual recognition of professional qualifications.
Reducing trade barriers and aligning regulations where beneficial.

Labour’s approach involves fostering closer cooperation with the EU while maintaining the UK’s regulatory autonomy.

Innovation in Financial Services and Fintech

Labour’s commitment to innovation is evident in their plans for AI, tokenisation, and digital currency:

Artificial Intelligence: Labour aims to lead the global race in AI development, ensuring consumer protection and regulatory clarity.
Tokenisation: Labour plans to advance work on tokenisation, exploring legal clarifications and regulatory frameworks.
Digital Currency: Labour supports the development of a state-backed digital pound, ensuring it addresses privacy, inclusion, and stability concerns.

Regulatory Innovation

Labour proposes the creation of a new Regulatory Innovation Office (RIO) to enhance regulatory agility and coordination. The RIO will:

Update regulations to keep pace with technological advancements.
Promote transparency and accountability in regulatory performance.
Foster cross-sectoral coordination and best practices.

Approach to Net-Zero and Sustainable Finance

Labour’s manifesto and Financing Growth highlight their commitment to sustainable finance:

Advancing the UK Green Taxonomy to align with international standards.
Encouraging investment in green projects through innovative financial instruments.
Mandating credible transition plans for UK-regulated financial institutions to meet climate goals.

Insurance Sector

While the manifesto is silent on the insurance sector, Financing Growth outlines Labour’s intent to work with the PRA to ensure effective implementation of Solvency UK reforms, addressing investment demand and supply challenges.

Open Banking and Open Finance

Labour supports the expansion of Open Banking and the development of Open Finance:

Building on the success of Open Banking to deliver new use cases.
Enhancing financial inclusion and innovation through Open Finance.
Collaborating with regulators and industry to develop a robust regulatory foundation.

Consumer Protection Regulation

Labour endorses the FCA’s Consumer Duty and aims to streamline regulatory processes:

Directing the FCA to identify redundant rules and enhance regulatory efficiency.
Supporting integrated approaches to fraud prevention involving multiple stakeholders.

Potential Implications for Financial Regulation

Labour’s regulatory strategy emphasises support for the financial services sector while balancing consumer protection, competitiveness, and financial stability. Key areas to watch include:

The approach to regulatory streamlining and the balance with stability.
Efforts to deepen ties with Europe without rejoining the common market.
Regulatory clarity and industry engagement in shaping future policies.
The focus on fraud prevention and sustainable finance initiatives.

Conclusion

Labour has outlined a strategic vision for financial services regulation, emphasising stability, innovation, and sustainability. While specific details remain to be clarified, their high-level plans suggest a proactive approach to supporting the financial services sector’s growth and global competitiveness.

This summary provides an overview of Labour’s plans for financial services regulation based on available publications and statements. For further details, industry participants are encouraged to engage in upcoming consultations and stay informed on policy developments.