A wide ranging speech by the UK Chancellor Rachel Reeves at the City of London’s Mansion House included her plans to create pension “megafunds” through a new Pension Schemes Bill which would see the merger of Local Government Pension Scheme assets and the consolidation of defined contribution pension schemes which could, according to the Treasury, unlock around £80 billion for investment in local communities, business and infrastructure, powering growth in the UK and rewarding British savers as a result.
Among industry reactions, Erin Sims, financial services senior analyst at RSM UK, said: “The Chancellor’s ambitions to boost growth and competitiveness in financial services are timely after only the day prior, Swedish fintech company, Klarna, chose to list in New York and not London. That said, the most recent report on The Global Financial Centres Index 36, which ranks 121 locations, showed London edged closer to New York as a leading financial hub.
“By rebalancing the regulatory framework, this enables future growth and innovation. Moreover, the Chancellor’s commitment to sustainable finance is a bold move towards becoming a global leader in climate finance, particularly with the proposed legislation to regulate ESG ratings.
“The suggested reforms for the mutual and co-operative sector to “help unlock the full potential of the sector” are a positive step to promote inclusive growth and modernisation. It is certainly hoped that, collectively, these measures will boost innovation, attract international investment as well as focus on the transition to a greener economy. The first ever Financial Services Growth and Competitiveness Strategy set to be published in the spring is eagerly awaited.
“The Chancellor’s comments on combatting fraud with a coordinated effort are welcomed, however, measures may not go far enough. Fraud is the most frequently reported crime, representing over 40% of offences, yet arrests and prosecutions of fraud are minimal. Given the scale of the fraud, and with it evolving with the advancements of technology, a co-ordinated effort to combat fraud is crucial.
“Calls from those operating in the financial services industry will have been only partially answered with the government seeking for tech and telecommunication sectors to go “further and faster in reducing the scale of fraud taking place on their platforms and networks.
“But it failed to detail how or if these sectors will be held to account for enabling fraud; in the first six months of 2024, 72% of fraud cases were enabled by online platforms and 16% of cases by telecoms, emphasising the need to clamp down on this area. Whether there will be further detail on this point in the expanded fraud strategy due to be released in March 2025 is not yet known.”
James Klein, partner at law firm Spencer West said: “The Chancellor’s proposed changes would see some of the biggest reforms of the UK pension market in our lifetime. Analysis appears to highlight that pension funds return higher investment levels once the size of assets managed reaches between £25 to £50 billion. The approach, pooling pension funds into larger investment vehicles, should result in these “megafunds” having greater leverage in our domestic market, with monies being invested into larger more capital-intensive projects that smaller pension funds perhaps cannot access.
“As a result, the UK economy should see greater reward as increased private capital is channelled into large infrastructure projects, will help businesses scale and will create jobs. Of course, this will very much depend on the right investment choices being made at the time, as risk will undoubtedly increase in larger investments if they start to deteriorate.”
The Chancellor also highlighted the financial sector’s role in net zero, and the growth opportunity it offers the UK. Sustainable finance will play a vital role in the Government’s growth and industrial strategy, as highlighted in the Financial Services Growth & Competitiveness Strategy consultation, which was also launched yesterday. Echoing sentiments expressed by Lord Livermore at COP29 in Baku, Reeves reaffirmed the Government’s vision of building a Global Green Finance Capital here in the UK.
Key priorities the Chancellor outlined included the IFRS assuming responsibility for Transition Plan Taskforce work, the value of transition plans to UK financial growth, ISSB adoption and the launch of the Transition Finance Council with the City of London, as vital to driving global standards.
Ambition setting on green finance is key for UK competitiveness and leadership. UK success in capturing this economic opportunity depends on turning manifesto ambition into action – on commitments like 1.5C transition planning and the Green Finance Capital. Delivery of this package of consultations will help ensure the UK remains the best place in the world to do business in the high growth net zero space.
On the announcement of the Chancellor’s green finance package, Heather McKay, E3G Senior Policy Advisor said: “Green finance is the UK’s growth engine. By putting net zero at the heart of the Bank of England’s remit, confirming consultations on the green taxonomy and net zero transition plans, the Chancellor has restored UK leadership on sustainable finance.”
On 1.5C-aligned transition plans Joe Dillon, E3G Researcher said: “Without a private sector transition, the government cannot meet its climate commitments. We welcome the renewed commitment on mandatory transition plan disclosure as a critical step towards delivery of Labour’s manifesto commitment to ‘1.5C-aligned transition plans’. Credible, practical transition plans will be instrumental in enabling the private sector to capture the green growth opportunity. It is essential that the government heeds industry calls to proceed at pace on this agenda, starting with the publication of a roadmap to delivery of this manifesto commitment.”
On UK Green Taxonomy, she added: “It’s exciting to see progress on the UK Green Taxonomy with the launch of the value and use cases consultation – much delayed by the previous government. High quality guidance on what is green, and what isn’t, developed alongside the launch of the Transition Finance Council, is essential to ensure businesses, investors and consumers have full confidence in the future of their green investments and the Government’s commitment to delivering on the net zero opportunity.”
In further comment on the speech, the London Market Group (LMG) welcomed that HM Treasury will consult on a UK regime for captive insurance companies. If introduced, a UK regime could deliver an important risk management tool for UK and international plcs, as well as reinforcing London’s position as the global centre for risk transfer and insurance.
The announcement follows a campaign led by the LMG advocating for a dedicated and proportionate regulatory regime for captives. Over recent months, the LMG has been in discussions with HM Treasury, the Prudential Regulation Authority and Financial Conduct Authority over how the proposed regime might be shaped.
Caroline Wagstaff, CEO of the LMG said: “If London is to retain its position as a global centre for risk transfer, it needs to be able to offer all the tools in the toolkit; captives are an increasingly important part of that mix. This is a rapidly growing global industry, with captive premium estimated to reach US$161 billion by 2030, and other jurisdictions – including France and more recently Italy – are opening their doors.
“It is vital that the Government hears directly from UK plc, captive owners, managers, brokers and insurers – as well as businesses who may not have considered a captive before, about what they need to help make a UK market thrive. We will be working to ensure that this consultation delivers what the government needs in terms of depth and breadth of response”.
Julia Graham, CEO of AIRMIC commented: “Captives are taking centre stage as part of the established and long-term risk financing strategies of many important commercial organisations. In a context of complex challenges, the London insurance market retains a leading global position with an envious world class reputation. As part of this position, captives should play a mainstream role and in support of this, the UK should have a proportionate regulatory regime for captives.”
The London Market said it was pleased HM Treasury has recognised the exciting opportunities presented by this rapidly growing market and is grateful for the support of the Chancellor and Tulip Siddiq, the Economic Secretary to the Treasury and City Minister.
A UK captive domicile would offer UK plc the ability to build resilience and risk management here at home, while benefitting from an extensive financial services ecosystem; London-based global brokers with extensive captive consulting experience, an unrivalled range of local banking and asset management options and the world’s largest and most sophisticated reinsurance market.
Martin Cook, partner and head of the Financial Services sector group at law firm Burges Salmon, says: “The Chancellor, corroborated by the Governor of the Bank of England, painted an optimistic picture for the UK with a strong financial services sector at the heart of a domestic growth focused economic revival.
“The Chancellor’s proposals for the sector are wide reaching and span a broad range of regulatory hot topics from reform of the “duplicative” FCA Handbook, SMCR changes, sustainable finance, private capital and investment, and to improved clarity around consumer redress. There will be a number of important calls for input, consultations, and strategies etc. being published in the next few weeks and months which we will follow and consider.”
Kelly Mathieson, chief business development officer at Digital Asset, comments: “Rachel Reeves is right to recognise that the UK must modernise the technology underpinning the 2.5 trillion GBP Gilt market to make sure it’s not left behind. There’s a lot we can learn from the work already being done in other jurisdictions. Most recently, Euroclear and the World Gold Council successfully piloted the tokenization of Gilts, Eurobonds, and Gold on blockchain. Connecting these assets to a digital infrastructure demonstrates that tokenizing Gilts can enhance collateral mobility, improve liquidity, and increase transactional efficiency.
“The 2022 Gilt crisis significantly impacted market liquidity and the ability of institutional investors to meet margin calls. Gilts were sold in high volume, widening margin calls and creating a negative spiral. Digitised Gilts would have provided real-time collateral mobility to meet intraday margin calls, which would have significantly mitigated the need for mass market selling, which resulted in the Gilts crisis.
“The UK and the DMO now need to make the right technology choices to avoid replicating the operational challenges of the legacy systems used today. The UK Gilt market needs technology rails that meet this high regulatory bar, make the market more efficient and liquid, and ensure privacy. Emerging networks can work within the carefully constructed legal frameworks already in place to make the financial system more efficient and reduce risk.”
