UK Finance Calls for Regulatory Overhaul to Boost Sector
The UK financial services sector needs substantial regulatory reform to maintain its position as the world's largest net exporter of financial services, according to a new report from UK Finance.
The industry body, which represents banking and financial services firms across the UK, published its "Plan for Growth" this week, outlining specific reforms it believes would enhance the sector's contribution to economic growth while benefiting consumers and businesses.
The report comes as discussions intensify about the role of financial regulators in supporting economic growth, following the Chancellor's Mansion House reform agenda announced in November 2024.
UK Finance is pushing for immediate action that would signal the UK's openness to global investment, including amendments to the Financial Ombudsman Service (FOS) rules and requiring social media, technology and telecommunications companies to share costs related to combating fraud.
Regulatory Architecture Reform
The organisation proposes merging the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR), which currently operate as separate entities overseeing different aspects of the financial system. This consolidation aims to simplify the regulatory landscape.
āThe current regulatory framework has become a drag on growth,ā the report states, highlighting that post-financial crisis regulations have created overlapping requirements that disadvantage UK firms compared to other global financial centres.
The report calls for swift reform of the FOS, which adjudicates disputes between financial firms and their customers. UK Finance argues the service has evolved into a āde-facto regulatorā and should return to its original purpose as a low-cost Alternative Dispute Resolution service.
The FCA's recent proposals to āname and shameā firms during enforcement proceedings should be halted, according to UK Finance, citing reputational risks for firms and potential harm to UK competitiveness.
“The current regulatory framework has become a drag on growth”
Capital Requirements and Tax Reform
For banking institutions, UK Finance advocates recalibrating capital requirements to support increased lending.
The organisation argues for modifications to the Leverage Ratio framework, which establishes minimum capital thresholds banks must maintain against their assets.
The report specifically calls for increasing the existing Ā£50bn (US$64.7bn) threshold and exempting government bonds (gilts) from leverage ratio calculations, which would free up capital for lending and improve liquidity in the gilt market.
On taxation, UK Finance proposes a Treasury-led review of the Value Added Tax (VAT) regime for financial services and phasing out the bank corporation tax surcharge and the bank levy, additional taxes applied specifically to financial institutions since the 2008 financial crisis.
The removal of the 0.5% stamp duty on UK equitiesāa tax applied to share purchasesāwould drive more retail investment, according to the report.
Payments and Digital Innovation
The report emphasises the need for a modernised payments infrastructure. UK Finance calls for the PSR to clarify how the UK's account-to-account payments infrastructure will be upgraded, replacing the Pay.UK model that contributed to the failed New Payments Architecture (NPA) upgrade.
“Making the right choices in the coming months on these and wider proposals will ensure the UK harnesses financial services as a powerful engine of growth and avoids falling behind our global competitors”
In the digital assets space, the organisation advocates for a “proportionate regulatory regime” for cryptoassets, allowing both established banks and new market entrants to innovate around stablecoins—digital currencies designed to maintain stable value by being pegged to fiat currencies or other assets.
UK Finance urges the government to expedite the issuance of a digital gilt—a government bond issued in tokenised form using distributed ledger technology—reducing the timeframe from two years to one year to avoid falling behind global competitors.
A “digital wallet strategy” is needed to address the growing importance of digital payment methods, according to the report.
Economic Crime and Financial Inclusion
On tackling financial crime, UK Finance calls for mandatory measures from the Online Fraud Charter and contributions from technology companies toward fraud prevention and victim reimbursement.
The report advocates for a national financial inclusion strategy and modernisation of the Consumer Credit Act 1974, which regulates consumer lending but was created before digital banking and online credit applications existed.
Banking hubs—shared facilities where customers of different banks can access services—should continue to be rolled out, with over 100 already established against a target of 350 by the end of the current Parliament.
“Making the right choices in the coming months on these and wider proposals will ensure the UK harnesses financial services as a powerful engine of growth and avoids falling behind our global competitors,” the report concludes.
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