RegTech Intelligence 
The first King’s Speech of the new Labour government has signalled some significant changes which will have an impact on financial services firms. These include changes to pensions, bank resolution, a boost to digital ID and reforms to the Information Commissioner’s Office (ICO).
“We will continue to work with industry to enhance the UK’s international competitiveness and world-leading sustainable finance agenda, reinforce consumer protection and financial inclusion, and reinvigorate our capital markets. We will bring forward further detail in due course,” an HM Treasury spokesperson said on July 17.
The Pensions Schemes Bill, Bank Resolution (Recapitalisation) Bill, Cyber Security and Resilience Bill, Digital Information and Smart Data Bill, National Wealth Fund Bill, Skills England Bill and the Draft Audit Reform and Corporate Governance Bill will all affect the financial services sector.
Some of what was announced yesterday builds on work set in train by the last Tory government, while other bills will reinstate work parked or abandoned by it. The National Wealth Fund Bill delivers on a Labour manifesto promise designed to “crowd-in” private investment.
Wait for an update
The government will consider all in-flight reforms and determine the next steps at some point. That means firms will have to wait for an update to the Regulatory Initiatives Grid, which sets out timelines for changes to the UK’s financial regulatory regimes. Its eighth edition was delayed after the general election was announced. Members of the Financial Services Regulatory Initiatives Forum will decide when to publish an update later this year.
Secondary legislation pushing forward stablecoins regulation did not make it onto the legislative docket in the last parliament. The Financial Conduct Authority (FCA) and HM Treasury did not comment on stablecoins.
Regulatory Intelligence covered much of what is outstanding on the Edinburgh Reforms, other loose ends, and possible areas of legislative and regulatory focus in a recent Compliance Clarified podcast.
Pensions Scheme Bill
This bill will pave the way for the consolidation of small pension pots. According to the Pensions Policy Institute, there were around
2.8 million so-called lost pots worth a combined £26.6 billion in 2022. Allowing small pots to be amalgamated would reduce costs, said Kirsty Anderson, a retirement specialist at asset manager Quilter.
“A big issue for pension providers is dealing with small pots, especially those less than £1,000. These can lose money for providers due to administrative costs,” she said.
The bill will introduce transparency for savers over the value for money offered by their employers’ chosen pension scheme. The government said that over five years there was a 46% difference in the best- and worst-performing defined-contribution schemes.
Defined-contribution pension schemes will also be required to establish decumulation options, including a default option. There was disappointment from industry that the government had not taken the opportunity with the bill to revise auto-enrolment rules to lower the earnings cap and reduce the age at which you can start paying into an employer’s scheme to 18.
Tom Selby, director of public policy at AJ Bell, said the reforms also made the current review of the advice guidance boundary more urgent.
“It’s important therefore the FCA and Treasury continue apace with their development of targeted support and reform of the advice guidance boundary,” he said.
Bank Resolution (Recapitalisation)
Last year’s rescue of Silicon Valley Bank UK by HSBC highlighted that the risk of taxpayers bailing out failed banks remained. The bill provides the Bank of England with greater flexibility when dealing with the failure of small banks while ensuring the costs of managing such failure do not fall on taxpayers.
“It is right for the authorities to have more tools at their disposal, but we would expect the Bank Insolvency Procedure to remain the default option,” said David Posting, chief executive at UK Finance.
National Wealth Fund Bill
The bill will create a new National Wealth Fund (NWF) bringing together the British Business Bank and the UK Infrastructure Bank, capitalised with an initial £7.3 billion. The government believes the NWF can “crowd-in” £20 billion of private sector money to help the UK transform UK into a green “superpower”.
Chris Cummings, chief executive of the Investment Association, said the government was signalling its intention to mobilise capital into green investments by enshrining the NWF in legislation.
“The Climate Change Committee estimates that an additional £50-£60 billion of capital investment will be required every year over the next decade to deliver the UK’s net zero ambitions, and there is an urgent need to build the pipeline of investable infrastructure projects in the UK to support this,” he said.
The Planning and Infrastructure Bill will also aid green investment by streamlining the planning process for critical infrastructure, including renewable energy.
Skills England Bill
Financial services firms have long complained about the rigidity of the apprenticeship levy. Around £2.6 billion of funds went unused by employers between 2020-2022 because of this “rigidity”, according to the lobby group TechUK.
The government said yesterday that the levy would be reformed as part of the Skills England Bill. The bill creates a new coordinating body, Skills England, to bring together employers, unions, education and training providers with the government to work with the industrial strategy council to create and maintain a skills assessment of the UK’s current and future workforce needs.
Technology and digital skills are especially in short supply. In March, Bruce Carnegie-Brown, chair of Lloyd’s of London, said firms needed to reskill their existing workforce to meet the digital skills shortfall.
Draft Audit Reform and Corporate Governance Bill
The draft bill picks up the idea for transforming the Financial Reporting Council into the Audit, Reporting and Governance Authority (ARGA), with enhanced powers to investigate conflicts in the audit market and interrogate large private companies. The bill would remove some rules affecting smaller businesses at the same time.
Richard Moriarty, chief executive of the FRC, welcomed the draft bill.
“Without these changes we are the regulatory equivalent of being a sheriff for only half the county and with weaker powers than are needed,” he said.
Chris Cummings, chief executive of the Investment Association, said creating ARGA would boost trust, transparency and accountability in UK companies, auditors and capital markets.
Digital Information and Smart Data Bill
The UK has been building towards a national digital identity scheme since at least 2019 when the previous government ran a call for evidence. The GOV.UK One login, launched in 2023, is one of the first products of this workstream. It should be expanded through the Digital Information and Smart Data Bill.
It will provide a statutory footing to three innovative uses of data including establishing digital verification services and setting up Smart Data schemes, to share customer’s data securely and upon their request, with authorised third-party providers. It also calls for the ICO to be modernised.
“The King’s 2024 speech unlocks key digital rules that has been missing in the UK to date. One of these is the Digital Information and Smart Data Bill as it will enable better, faster, cheaper, and safer interpretation of ‘real facts’ that financial institutions have armies of operational staff validating today,” said PJ Di Giammarino, chief executive of JWG, an industry think tank.
The economic benefits of secure digital identities being in widespread use around the UK are estimated to be around £600 million per year, the government said.
“In an increasingly digital economy we welcome the focus in the Digital Information and Smart Data Bill on digital ID. It is vital that people in the UK have a secure way to prove who they are and access services,” said UK Finance’s Posting.
Cyber Security and Resilience Bill
The government announced its Cyber Security and Resilience Bill in response to increased attacks on the digital economy. It aims to strengthen the UK’s cyber defences, ensuring that critical infrastructure and the digital services that companies rely on are secure.
It will update the legacy regulatory framework to expand the regulatory boundaries to include more digital services and supply chains, allow regulators to ensure essential cyber safety measures are being implemented, and mandate increased incident reporting.
“The Cyber Security and Resilience Bill is welcome as it helps align with global movement towards cyber (e.g., NIS2, CRA, CSA) and operational resilience rules (e.g., DORA, CPS230). As the speech indicates, Europe and other regulators have been busy extending non-financial risk obligations and the UK needs a coherent risk framework to keep pace with the systemic risks from technology,” Di Giammarino said.
FCA-regulated firms are required to report operational incidents including cyber incidents under Principle 11. (Lindsey Rogerson and Rachel Wolcott, Regulatory Intelligence)
This article was published by Thomson Reuters Accelus Regulatory Intelligence on 19 July