Kemi Badenoch's radical banking reforms promise a £450bn boost to the UK economy, sparking fresh controversy over post-financial crisis regulations. Speaking at the CityUK conference, Ms Badenoch claimed that current rules are stifling London's financial sector, with £200bn in investment being lost due to 'out-of-date' legislation.
The abolition of 'ring-fencing', a measure introduced after the 2008 financial crisis, is central to her proposals. Ring-fencing requires major banks to separate their retail banking operations from more volatile investment activities. This has been a contentious issue in the City, with leading banking executives having previously petitioned Chancellor Rachel Reeves for its removal. Ms Badenoch argues that this regulation adds 'friction' to banks' activities, hindering their ability to invest and squeezing growth out of the economy.
In addition to ring-fencing, Ms Badenoch also plans to scrap the Financial Ombudsman Service (FOS), which has faced criticism for allegedly acting as a quasi-regulator. The FOS would be replaced by an independent body tasked with streamlining dispute resolution and applying the law factually.
The proposals also target banks' capital requirements, which dictate the amount of funds they must hold to absorb unexpected losses. Ms Badenoch argues that 'buffer after buffer after buffer' has been imposed, and a Conservative government would bring these levels back in line with competitor jurisdictions. While the Bank of England's Financial Policy Committee (FPC) currently sets these requirements, Ms Badenoch indicated that changes would be made to the legal framework underpinning the FPC's operations.
The Chancellor's annual Mansion House address is imminent, where financial services are expected to take centre stage. The current government has initiated some reforms to ring-fencing and begun plans to overhaul consumer redress protections. Industry body UK Finance welcomed the engagement on enhancing UK competitiveness, stating that 'ensuring reforms are delivered will help the sector support investment and growth across the wider economy'.