It has been just over a week since Chancellor Rishi Sunak made a statement to Parliament setting out the Government's approach to financial services following the UK's imminent departure from the EU on 31 December; a statement that has since sparked much debate, intrigue and (cautious) excitement in the fintech, market infrastructure and payments space.
Hailing the start of a stimulating new chapter for UK financial services, the Chancellor laid out plans to bolster the dynamism, openness and competitiveness of the sector. The Government's ultimate aim is to renew the UK's position as the world's pre-eminent financial centre by ensuring that the UK moves forward as an open, attractive and well-regulated market - void of any onerous and unnecessary rules which are seen to be stifling competition and innovation. However, the key question which remains (with Brexit just around the corner) is how quickly and effectively the UK can put into motion the ambitious initiatives laid out by the Chancellor, particularly to ensure that the UK maintains its pre-eminent position as a global financial hub and that the UK remains at the forefront of new innovations and developments in financial services and technology.
The Chancellor's announcement set out three broad ways in which the Government hopes to achieve its vision for a UK financial services industry which is open, innovative and leads the world in the use of green finance.
Equivalence and openness
In his announcement, the Chancellor noted that the UK's attractiveness as a global financial centre is underpinned by its openness to international markets and robust regulatory standards. Not only did the Chancellor announce that the UK will be granting a package of equivalence decisions to the EU and EEA Member States, he also announced the publication of a guidance document setting out the UK's approach to equivalence with overseas jurisdictions – a technical, outcomes-based approach which prioritises stability, openness and transparency.
Further, the Chancellor set out plans to boost the number of new companies who seek to list in the UK. These plans include establishing a task force that will propose reforms to the UK listings regime to attract the most innovative and successful firms and help companies access the finance they need to grow and succeed.
The Government will also launch a Call for Evidence on the UK's overseas regime to ensure that it supports the UK's position as an open global financial centre, publish a consultation on reforming the UK's funds regime and launch the UK's first Long-Term Asset Fund.
Extending the UK's leadership in financial technology
The Chancellor proudly noted that not only is the UK's financial sector known for its openness – but also for its ingenuity and inventiveness. The Government aims to stay at the cutting-edge of payments technologies in order to ultimately deliver better outcomes for consumers and businesses.
The first stage of the Payments Landscape Review has been concluded and the Government will shortly publish new plans to help further support the payments sector. There will also be a consultation published on privately-issued currencies, known as stablecoins, to make sure that they meet the same high-standards as those of other payment methods. Further, the Bank of England and the Treasury are considering whether central banks can issue their own digital currencies, as a complement to cash.
Positioning the UK at the forefront of green finance
Recognising that financial services are crucial in the drive for net zero, the Chancellor outlined new proposals to support sustainable financial flows and extend the UK's global leadership in green finance ahead of hosting the UN Climate Change Conference in 2021.
To help the UK meet its 2050 net zero target and other environmental objectives, the Chancellor announced the UK's intention to mandate climate disclosures by large companies and financial institutions by 2025 – making the UK the first G20 country to do so. The Chancellor further announced the introduction of more robust environmental disclosure standards so that investors and businesses can better understand the material financial impacts of their exposure to climate change, price climate-related risks more accurately, and support the greening of the UK economy.
The UK will also implement a green taxonomy which aims to improve understanding of the impact of firms' activities and investments on the environment and support the UK's transition to a sustainable economy. To support and benefit from the development of common international standards on taxonomies, the UK also intends to join the International Platform on Sustainable Finance.
Clearly, therefore, the Government's vision for the UK's financial services industry is a bold one. It is a vision which sees: (i) a technologically advanced industry, using all its ingenuity to deliver better outcomes for consumers and businesses; (ii) a greener industry, using innovation and finance to tackle climate change; and (iii) ultimately, an industry that properly serves the people and interests of the UK.
It remains to be seen if the Government's plans, as they continue to be implemented over the coming months, can live up to the ambitions outlined in the Chancellor's statement. Nevertheless, it is clear that the Government's proposal is steering the UK's financial sector in the right direction; a direction which is undoubtedly welcomed by market participants, in particular financial market infrastructures, other fintechs and e-money institutions.
Of course, recent positive strides have already been made in the payments space, as outlined in the Payments Landscape Review. Such strides include clear Government and Payment Systems Regulator support for the design and implementation of a new payments architecture and other payments initiatives which are, ultimately, aimed at encouraging competition and innovation in the fintech and payments space. The Payment Landscape Review also signals an increased focus on encouraging innovative payment solutions to enhance the customer's payment experience, a successful example of which is the recent launch of the Request to Pay (RtP) service on which a cross-disciplinary Travers Smith team led by Natalie Lewis were instructed to be project counsel (for more detail on RtP please see our press briefing here).
As the Chancellor notes, the Government is undertaking a series of reviews to ensure that the UK's payments regulation acts to enhance the UK's attractiveness to businesses and further strengthens its position as a global financial hub – these include the Fintech Strategic Review and the Financial Services Bill. Although not specifically mentioned by the Chancellor, other "hot topics", of course, include developments in cyber security and digital finance, in relation to which the EU has recently issued a proposed digital finance package. Although that will not come into force before the end of the Brexit transition period, the EU measures likely also indicate a strong direction of travel for UK-specific regulation in this area.
Yet, as was made clear by the Chancellor's announcement, there is still plenty more to be done – particularly to ensure that "the UK remains committed to the highest standards of regulation". Clearly, such regulation must both promote innovation and competition, but do so in a manner which protects the integrity of the financial market infrastructures and markets that they serve. We certainty look forward to the outcome of the Payments Landscape Review to see how the Government intends to tackle this delicate balance in light of the industry's feedback. Watch this space!