This overview will first focus on the Labour government’s plans regarding financial services regulation, a key area of interest at Halkin. Following this, it will provide a broader overview of how the Labour government may impact law firms and industry more generally in the sphere of financial regulation.
Labour’s Vision For Financial Services
Following their overwhelming majority victory with 412 seats, Labour’s approach to financial services promises predictability and a balance between consumer protection, competitiveness, and financial stability. One example of such promised stability measure is Labour’s plan to cap corporation tax at 25% for the entire parliamentary term. This measure aims to offer predictability for businesses, facilitating long-term planning and investment decisions. While Labour’s manifesto is light on specifics, other sources provide insight into their plans. Labour champions the financial services sector, viewing it as a cornerstone of the UK’s economic future. They emphasise a pro-business, pro-worker stance, advocating for a robust regulatory regime that avoids the pitfalls of the pre-2008 financial crisis era. Labour aims to maintain high regulatory standards while streamlining rules to be efficient, proportionate, and coordinated across government. They also intend to foster a closer relationship with Europe, seeking deeper cooperation.
Innovation and technology are another priority. Labour envisions the UK as a leader in these fields, promoting regulatory clarity and advancing initiatives like financial market infrastructure sandboxes and tokenized gilts pilot issuance. Sustainable finance is also a crucial focal point, with commitments to advancing the UK Green Taxonomy and mandating credible transition plans for UK-regulated financial institutions to align with the Paris Agreement goals. They also plan to explore covered bonds for green assets to boost investments in net-zero infrastructure. Labour’s regulatory innovation includes establishing a new Regulatory Innovation Office to modernise regulation and improve coordination across sectors. They also support Open Banking and Open Finance, aiming to expand data consolidation from various financial products to enhance financial inclusion and spur innovation. Consumer protection will also be a focus for Starmer’s government and its plan for financial services in the UK.
Implications
The new government’s focus will be on “regulation for growth” and reallocating capital to areas such as venture capital, small-cap equity, infrastructure, green energy, and green home improvements. Labour’s vision emphasises uniting “workers and business” for wealth creation, with the financial services industry playing a key role, particularly in facilitating private investments alongside public funds. The National Wealth Fund, for instance, plans to generate £3 in private investment for every £1 it invests. This approach may involve reforms in pensions and retirement to encourage specific investment choices, increased regulatory support for retail investors, and policies to promote growth in cooperatives and mutuals. Labour is also open to innovations like easing regulations for new savings products, regulating AI, developing a central bank digital currency, and exploring securities tokenisation. Additionally, Labour plans to advance open banking/finance through its “Smart Data schemes” and establish Digital Verification Services.
Labour also aims to strengthen the UK’s trade and investment ties with the EU by removing unnecessary obstacles for businesses, particularly in green finance, mutual recognition of professional qualifications, and cross-border clearing. Additionally, Labour seeks to lower trade barriers where UK and EU regulations are compatible, with a primary focus on enhancing the competitiveness of UK financial services. While a return to the pre-Brexit regulatory framework is unlikely, the UK will still pursue selective regulatory divergences. Nonetheless, there is a noticeable trend towards gradually increasing alignment with EU financial services regulations. Meanwhile, Keir Starmer’s Regulatory Framework review will proceed, and existing reforms, such as the Financial Services and Markets Act 2023, will continue as scheduled.
Similarly, the new government will also be placing emphasis on consumer protection in its financial regulatory plans. It aims to implement a comprehensive anti-fraud strategy, including measures to introduce anti-fraud features in real-time payments and potentially granting the Financial Conduct Authority (FCA) new powers to ensure face-to-face banking services. Key initiatives include regulating buy now, pay later (BNPL) products and collaborating with HM Treasury and the FCA to clarify the advice-guidance boundary, thereby addressing the “advice gap” and encouraging firms to provide better customer support. However, challenges remain in managing complaints and claims risks. The government also plans specific pension reforms, such as consolidating small defined contribution (DC) pension pots, introducing standardised value-for-money tests for DC schemes, requiring trustees to offer retirement income solutions, and consolidating the defined benefit (DB) market through commercial Superfunds. The Pensions Ombudsman will be reaffirmed as a competent court to simplify the recovery of over-payments. Labour emphasises a balance between regulation and efficiency, citing the Consumer Duty as a model for outcomes-focused regulation. This approach aims to streamline the FCA’s rulebook and could lead to fewer rules in the future.
Let’s Talk Strategy
Halkin aims to differentiate itself from its competitors through structuring our teams by specific practice areas, similarly to law firms. This means that each one of our consultants specialises in advising lawyers within specific practice areas like financial services regulation. We advise lawyers on the steps they can take to maximise their career goals. Our goal is to provide valuable insights without exerting undue pressure. However, we will engage with lawyers to ensure they are aware of and consider opportunities they might have overlooked. As our work takes a consultative approach, we are eager to engage with regulatory lawyers to discuss their work and offer valuable insights into the evolving market. This means that we focus on building long term relationships with the individuals and law firms we work with. We are committed to assisting clients in building out their teams, and individuals to develop their careers.