A View From The Exchange: A new Labour government, what's next for UK financial services?

What does a new Labour Government mean for the financial services landscape in the UK? 

Whilst it is still too early to say anything definitive, some helpful guidance can be taken from the Labour party's publication in January 2024 titled 'Financing Growth – Labour's plan for financial services' ("Financing Growth") which outlines six priority policies comprising the Labour party's proposed vision for the UK financial services sector. These are:

1. Enhancing the international competitiveness of the UK financial services sector
2. Reinforcing consumer protection and financial inclusion
3. Embracing innovation and technology (including artificial intelligence and cryptocurrency)
4. Leading the world in sustainable/green finance
5. Delivering inclusive growth (including by scaling regional UK financial centres)
6. Reinvigorating capital markets

This indicates strong support for the financial services sector, but where might we see the most change? Although difficult to say at this early stage, it appears the Labour party is willing to support the needs of the UK financial market by "removing unnecessary barriers for firms". We might therefore see the new government seek support from and work closely with UK financial services regulators to help achieve this. The creation of a new Regulatory Innovation Office will likely play a key role in improving accountability and promoting innovation in regulation across sectors. This gives rise to an inevitable tension between the Labour party's vision to maintain the UK's global reputation for high quality regulatory standards versus their desire to streamline regulations to remove barriers for companies.

As part of this desire to streamline regulations, the Labour party signalled its intention to align the FCA handbook with the outcomes-based approach of the Consumer Duty. It proposes to do this by directing the FCA to issue an open call to industry to identify rules which have been made redundant by the Consumer Duty and for the FCA to define a transparent process for evaluating and responding to suggestions. There is of course a fine balance here, with the Labour party noting in particular that it "respects the FCA’s independence in determining the appropriate changes in line with the Consumer Duty". The focus on consumers and ensuring fair outcomes remains a priority area. This is clear from the Labour party’s proposals to give further flexibility to payment services providers to prevent fraud, as well as the proposed regulation of the 'buy now pay later' sector. 

With the use of artificial intelligence and new technologies in financial services being hotly discussed at the moment, it is good to see this as a priority area in Financing Growth. It will be interesting to see how the new government balances the opportunities for innovation and the efficiency this brings, against the challenges and risks posed by such technologies.

Ultimately, only time will tell if and how this vision (and the individual proposals within it) will be implemented in practice, but early indications suggest the Labour party have the growth of UK financial services front of mind.

Author: Aneesa Khan, Senior Associate