Economic Secretary to the Treasury John Glen – the longest holder of the role since it was created in 1947 – believes that light-touch regulation, innovation, and sustainability in financial services are now critical to the UK’s economic prosperity.
Speaking at the UK Finance Annual Dinner last week, Glen acknowledged that the public has held financiers in low esteem since the 2008-09 financial crisis: just three percent see bankers very favourably, according to a recent YouGov poll.
Glen said, “We need to dispel that myth of the bad banker and replace it with what is increasingly the reality: of the innovative banker or entrepreneur finding new and better ways of doing things. New propositions, new offerings and new operating models, in turn, benefiting consumers, businesses and communities.”
He added, “The Prime Minister himself has made the point that just as we clapped for the NHS during the pandemic so we should applaud those who make the NHS possible: our innovators, our wealth creators, our capitalists, and our financiers.”
Glen’s high-risk comments ignore the fact that the NHS is largely funded by general taxation, just 5.5 percent of which is contributions from the UK banking sector, according to an October 2021 PwC report for UK Finance.
They also ignore the scandals involving major banks in recent years, such as Libor and Forex market rigging, money laundering, and the mis-selling of payment protection insurance. Few retail banks have escaped censure since the Credit Crunch.
Yet Glen’s speech focused on an emerging theme for the embattled government: rethinking UK regulations for the post-Brexit world, a policy that affects every UK organisation that serves a regulatory or enabling function, including the Information Commissioner’s Office (ICO) and the Financial Conduct Authority (FCA).
“I fully support the ambition to transform the FCA into a more nimble and innovative regulator,” said Glen, “and look forward to seeing this ambition turned into reality over the coming weeks, months, and years.
“The Financial Ombudsman Service [FOS] will also shortly publish the conclusions of its independent review on how to improve the FOS’s operational effectiveness and allow it to adapt to meet future challenges.”
Maintaining regulators’ strong reputation on the world stage doesn’t mean leaving things as they are, he continued, suggesting that the shift away from the EU now begins in earnest.
“We need a regulatory framework that is more agile and more responsive than we have ever had before. That avoids politicisation and posturing but gives decision-making to the independent and expert regulators, so that we can regulate better, more quickly, more flexibly.
“To my mind, it is a completely false choice to say that we have to choose between high standards or greater competitiveness. We need regulators who think carefully about both.”
Again, the comments about depoliticising the regulators are ironic given that Downing Street recently attempted to shoehorn a noted supporter, former Mail supremo Paul Dacre, into the Chair position at communications regulator Ofcom – twice.
“We shouldn’t think of regulation as being like the Ten Commandments, fixed forever on tablets of stone,” continued Glen. “Regulation is not a science: it is the best attempt very good people make to calibrate and manage risk at a given point in the life of an economy or society.
“It should mean regulators having the self-confidence to ask themselves whether they have got the right balance, whether there are any unintended consequences of what they have done, or whether they are placing too great a burden on firms [that are] trying to do the right thing.
“Yes, of course, regulators must be free to take action – and sometimes fast action – to tackle bad apples and get them out of the market. But they should also work collaboratively with industry, to understand their often-new business models, and to foster innovation and technological transformation safely and responsibly.”
This hints at a general relaxation of the UK’s regulatory environment, a move that will play well with the government’s many Eurosceptics but is not without risks.
The UK’s fragile data adequacy agreement with the EU is no minor consideration: over 80 percent of UK organisations store, process, or host at least some data in EU data centres – including banks, the NHS, charities, and government departments.
Therefore, any broad move away from UK equivalence in matters of data protection and consumer rights in favour of lighter-touch regulation may fatally compromise UK organisations’ ability to process, store, or host data in the EU.
This includes the networks of major cloud suppliers, such as Amazon Web Services (AWS), now a strategic government supplier, Microsoft, Google, and others, many of which underpin essential UK services.
Regulators must “reflect the importance of the financial services sector as the plumbing of, as a utility for, the wider economy, and the need to support the future strength and viability of the United Kingdom as a global financial centre,” he said.
“Resilient and efficient markets, underpinned by effective regulation and competition are essential prerequisites for fostering an internationally competitive and respected financial services sector.
“The regulators must be able to act creatively and purposefully… so that the UK continues to be a stable and resilient place to base a global business.”
We have an “opportunity and a responsibility to lead the world” on setting and maintaining international standards on green finance, on fintech, on retail investment, and on financial services trade agreements, he added.