Jeremy Hunt insists City reforms do not ‘unlearn the lessons’ of 2008 financial crisis – as it happened

Time to recap

The government’s plan to unpick the ring-fencing rules protecting retail banking operations from an investment banking blow-up has concerned some experts.

Dr Angela Gallo, senior lecturer in finance at Bayes Business School, urges caution around any plans to de-regulate this part of the financial services industry, saying:

“Together with the removal of the bank bonuses and the discussion on call-in power, this political decision seems to have little to do with fixing the financial system or ensuring financial stability

“These were the main arguments behind many of these reforms in the aftermath of the financial crisis, but this seems to have more to do with a wish to deregulate.

“Increasingly, the initiatives of the government seem to ultimately target the role of central banks and regulators. While ring-fencing was a costly measure, the system has already adapted to it.

“De-regulation, unless carried out with a clear objective, can be dangerous.”

Investment company Abrdn has also welcomed Jeremy Hunt’s plans.

Following a roundtable with financial services leaders earlier today, at which Chancellor Jeremy Hunt unveiled today’s “Edinburgh Reforms”, Abrdn’s CEO Stephen Bird says,

“As a global investment company, abrdn is a vocal advocate of the strengths of the UK as a financial centre, and those of Scotland in particular, but the world is moving fast and we must pick up the pace of reform to win back our place in a competitive world.

We therefore welcome today’s announcement with its clear focus on competitiveness and future success of the UK financial services sector. Financial services is a critical enabler of any growth economy, we gather capital and put it to work to create better schools, hospitals and homes and when invested wisely, we assist in the long term provision for the futures of this and the next generation.

We need to see a mentality shift in the country overall that encourages innovation and partnership that delivers better outcomes for all citizens.

Regulation is important as a protection for all of us, but it has to be simpler and more thoughtfully designed to deliver the right outcomes with less bureaucracy.”

In other business news, the head of Penguin Random House, the world’s largest publisher, is to step down at the end of the year after a US judge blocked a planned $2.2bn merger with its rival Simon & Schuster.

Markus Dohle had resigned “at his own request and on the best of mutual terms”, the company said in a statement on Friday.

Nihar Malaviya, who is president and chief operating officer of Penguin Random House U.S., will take over as interim CEO from January 1st, the company added.

Dohle said in a press release that:

“Following the antitrust decision in the U.S. against the merger of Penguin Random House and Simon & Schuster, I have decided, after nearly 15 years on the Executive Board of Bertelsmann and at the helm of our global publishing business, to hand over the next chapter of Penguin Random House to new leadership”.

Jeremy Hunt has denied that it is reckless to be relaxing financial regulations, speaking to broadcasters in Edinburgh where he’s unveiling today’s proposals.

Asked whether he is effectively sowing the seeds of the next financial crash, the Chancellor insists that the banking sector is stronger than before the collapse of Lehman Brothers 14 years ago:

“No, because we have learned the lessons of that crash, we put in place some very important guardrails, which will remain.

But the banks have become much healthier financially since 2008. We put in place a process so that financial issues can be resolved, which we didn’t have before.

On that basis, we also want to make sure they can compete with other financial centres, whether it’s the United States or Asia, and Scotland is in a fantastic place to do that. That’s why these reforms will make a big difference.”

Britain’s biggest business group is backing Jeremy Hunt’s plans.

Flora Hamilton, director of financial services at the CBI, which has been pushing the chancellor to develop a growth strategy for the UK, says:

“The Chancellor is absolutely right to use his ‘Edinburgh Reforms’ of the financial services sector as an opportunity to drive UK growth, alongside taking sensible precautions to protect consumers, businesses and financial stability.

“Reforming the ringfencing regime for banks, bringing a broader range of investment-related cryptoasset activities into UK regulation and overhauling the UK’s regulation of prospectuses can all help build a more dynamic, competitive and future-focused financial sector that will deliver gains for the whole UK economy.

“While bringing forward secondary legislation to implement the Wholesale Markets Review reforms - as well as confirming the early 2023 publication of the Green Finance Strategy – are welcome moves, firms remain concerned about a lack of policy clarity and absence of public consultation on the future of the UK Taxonomy.

“The Chancellor’s decision to bring industry experts together to determine the opportunities and risks associated with divergence represents a sensible approach to the post-Brexit regulatory environment in financial services. Developing this cooperative approach across the whole economy will support a new regulatory approach, one more geared towards delivering better outcomes for consumers, for the environment, and ultimately for the country.”

City Minister Andrew Griffith has told Bloomberg TV that he and Jeremy Hunt want the City of London, and the broader UK, to compete on the world stage and take advantage of opportunities from Europe and around the word.

Asked if it was really the EU that was holding the UK back, Griffiths says he’s not fixated on any particular market, but he and the chancellor “want to be the best version of ourselves”.

He argues that the government wants to equip the UK financial services sector with a rule book that gives it the best chance of competing in a agile and flexible way.

Here’s the clip:

The package of measures unveiled by Jeremy Hunt today will do little to reverse the post-Brexit flow of financiers to the continent, warns Liam Proud of Reuters Breakingviews.

He writes:

The context for the government’s announcement is that 7,000 financial services staff and £1.3 trillion of assets have hopped across the channel since Britain left the European Union, according to EY.

Brexiteer prime minister Rishi Sunak is committed to making a success of the split. Hence Friday’s package, long trailed as a “Big Bang”, supposed to turbocharge the City.

It won’t. The meatiest aspects are changes to ringfencing rules separating retail and investment banking, and the senior managers regime, which holds top bankers accountable for corporate wrongdoing.

Hunt may take smaller lenders out of the ringfence, and allow bigger ones to offer some wholesale banking products on the retail side, like inflation derivatives.

Eventually, he could end the regime if banks prove they can safely be wound down. Hunt hasn’t spelled out changes to the senior-manager rules, but he seems likely to weaken them, since his review will consider their “proportionality”.

Neither of those regimes have anything to do with Europe.

UK finance’s main problem in recent years has been its loss of direct access to European financial markets and the passporting rights, which allowed major global banks to serve the EU from London, Proud points out.

The only way to undo the damage would be to align with European rules indefinitely or to re-join the bloc, both of which are political no-gos.

Hunt’s fiddling will therefore do little to stem the bleeding.

Here’s the full piece:

UK’s Big Bang barely mitigates City’s Brexit Pain

City minister Andrew Griffith has pledged that the deposit guarantee scheme for people’s savings in banks remains “absolutely secure”.

The economic secretary to the Treasury told BBC Radio 4’s World At One programme that:

“What we’re talking about here is a broad tapestry of regulation.

“There’s nothing that removes the Bank of England in that case, (its) duty to make sure that the Bank and the financial system is sound. They’ve been consulted as part of these reforms.”

Sir John Vickers, the economist who led a major review of the UK’s banking industry after the financial crash, said “unravelling” the ring-fencing regime on Britain’s banks would be a “huge mistake”.

Vickers, the Warden of All Souls College, Oxford, told Radio 4’s World at One programme that he would be concerned if ministers thought the regime (which protects retail bank operations from other shocks) was no longer needed.

He says:

“I’d love to have more clarity from the Government on where they stand on this.

“If they’re saying, ‘well, it’s worked OK for now, but maybe over time we’re not going to need it and we can roll it back’, then I would get very concerned.

“So, adjustments to a given bit of the architecture: fine. Going down the path to unravelling this regime: huge mistake in my view.”

The Independent Commission on Banking, led by Vickers, recommended in 2011 that banks should ringfence their high street banking businesses from their “casino” investment banking arms.