UK Chancellor Pledges Leeds Reforms to Boost Financial Growth and Review Bank Ring-Fencing Rules

The architect of the UK’s post-crisis ring-fencing regulations has cautioned against weakening the rules, following Chancellor Rachel Reeves’ unveiling of her so-called Leeds reforms. Reeves announced plans to implement significant changes to the country’s financial regulatory framework during a visit to Leeds, aiming to improve growth while ensuring stability in the financial sector.

Introduced after the 2008 financial crisis, the ring-fencing rules require banks to separate their high street operations from riskier investment banking activities. Reeves confirmed that the Treasury plans to review the ring-fencing regime, with proposals to grant banks greater flexibility while maintaining stability. The Treasury indicated this review would explore enabling ring-fenced divisions to expand their services to UK businesses and share more back-office resources across their organisations.

Sir John Vickers, who led the commission that recommended ring-fencing in 2011, expressed concern about any substantial dilution of the framework. Speaking to The Times, Vickers cautioned that “weakening the basic architecture” of ring-fencing would be a mistake, as it plays an essential role in ensuring the soundness and safety of the UK’s banking system.

The ring-fencing review is part of a broader wave of regulatory reforms unveiled by Reeves, which she described as the “most comprehensive regulatory reform package for financial services in over a decade.” Her proposed changes are designed to enhance the UK’s competitiveness in the global financial sector, with a particular focus on boosting investment and export growth.

The package includes an overhaul of the Financial Conduct Authority’s (FCA) consumer duty rules. These regulations, only introduced in July 2023, have prompted concerns over how they influence business-to-business interactions. Simplifying the senior managers regime, another post-crisis reform, is also on the agenda to address criticisms about its complexity and effectiveness in holding executives accountable.

To attract international investment, the reforms will create a new “concierge service” to help foreign financial firms enter the UK market. In addition, a listings taskforce will work to encourage companies to choose the London Stock Exchange. The Financial Ombudsman Service will also undergo reforms to address industry complaints about its unpredictable handling of disputes.

The Bank of England will introduce rule changes to reduce capital requirements for lenders, alongside measures designed to cut red tape for smaller banks, boosting their ability to compete in the UK mortgage market. These moves aim to support the growth of small and mid-sized banks, a key element in Reeves’ effort to strengthen the sector.

Reeves’ ambitious reforms intend to double the growth rate of UK financial services exports by 2035. They reflect increasing calls for the government to stimulate the economy and position Britain as a global leader in financial innovation and investment. The reforms have sparked debate over balancing deregulation with maintaining financial stability.