After 14 years of Conservative government, we now have a Labour majority. But what does it mean for the financial sector; should you be braced for change, or will it be business as usual?
We’ve delved into their Mission Economy and Financing Growth: Labour's Plan for Financial Services to get you up to speed with what Labour’s win means for your firm.
Looking broadly, what’s in the mission statement?
Labour’s first mission in government is to secure the highest sustained growth in the G7—with good jobs and productivity growth in all parts of the UK. Financial Services are integral to their mission, and they’re keen to make the UK financial sector a global leader.
Their policy here is guided by four key principles:
- Promote the financial sector as one of the UK’s competitive differentiators.
- Balance consumer protection, competitiveness, and financial stability.
- Support the independence of the UK’s financial institutions.
- Maintain commitment to fiscal responsibility.
Baringa's viewIt’s positive to see financial services so prominent in the manifesto and it’s clear that Labour has engaged heavily with UK financial leaders. There’s a clear commitment to fiscal responsibility and support for the independence of UK financial institutions. The new chancellor, Rachel Reeves, spent several years at the Bank of England and in private institutions so it’ll be interesting to see how her own experiences shape policy. |
Diving deeper, what are the key policy areas?
1. Deliver inclusive growth
Growth is a big theme of Labour’s manifesto and it’s the cornerstone of their financial policy. They want to scale regional financial centres alongside established hubs in London and Edinburgh—and they want to also unlock the full potential of the mutuals sector.
Labour also wants to work with local government pension schemes (LGPS) to set out best practices for adopting similar, cost-effective in-house fund management. And they also want to explore setting additional KPIs for the British Business Bank (BBB) regional funds to ensure they have access to small and medium enterprise (SME) financing across all regions.
Additionally, Labour’s committed to supporting the Harrington Review of Foreign Direct Investment and want the Office for Investment to act as a support unit for international financial services firms looking to set up operations in the UK. They also want to review impact investing models to crowd in more private finance to fund development of cities and regions.
Baringa’s view:If implemented sensibly, Labour’s focus on financial services and the aspiration to drive the greatest growth in the G7 is very much welcome—and it’s indicative of the positive sentiment we’ve seen come from their financial services policies so far. So, if the next government is able to enact these policies effectively and put financial services at the heart of the UK’s growth agenda, the opportunity for financial leaders is significant. |
2. Enhance international competitiveness
Regulation and innovation are recurring themes in the manifesto. Looking at Labour’s goal to enhance international competitiveness, we can expect to see financial stability high on the agenda, more cross-border collaboration, and a more joined-up approach to regulation.
Specifically, Labour wants to improve the efficiency of regulatory and supervisory activities between regulatory and supervisory bodies and promote a joined-up approach focused on innovation. They propose setting up a Regulatory Innovation Office to promote innovation in regulation and transparency on regulator performance. They’ll also introduce new metrics for the FCA and PRA to demonstrate progress on growth and competitiveness.
Labour will also support the on-going work to align with the resolution regime, as recommended by the Skeoch Review to protect financial stability and limit bureaucracy for banks. They will encourage the FCA to streamline the FCA rule book in light of the introduction of Consumer Duty. And they’ll support the Future Regulatory Framework to define a regulatory framework that advances the future of the UK’s financial sector outside of the EU. Labour will also look to increase services exports and collaborate on shaping international standards.
Additionally, they’ll seek to build on the UK-EU Financial Services MoU, which established the regulatory dialogue to deepen cooperation in emerging areas of financial services, such as green finance. The Party also wants to reduce barriers to EU trade in areas where UK regulations deliver similar outcomes, including finding a sustainable solution for cross-border clearing.
Baringa’s view:When it comes to EU co-operation, firms should expect closer alignment on key emerging regulatory initiatives. For example, we could see more detailed UK regulations around digital operational resilience and AI to align with those already coming out of Europe. It’s also clear that Consumer Duty is here to stay. Labour has signalled strong support for the Consumer Duty, with the expectation that other rules might be streamlined with the Duty, removing redundancy to aid efficiency. Labour has also focused on the efficiency of regulatory and supervisory activities. Proposals to introduce a Regulatory Innovation Office, with increased co-operation and co-ordination with other sectors, could introduce new expectations that seek to regulate cross-sector activities. |
3. Reinforce consumer protection and financial inclusion
Payments, mortgages, and consumer protection all feature strongly in Labour’s plan for financial services. They’re planning to regulate the Buy Now Pay Later (BNPL) sector under FCA supervision and they’re going to support the FCA and PSR’s work to allow payment service providers to delay suspicious payments.
They’ll also direct the FCA and PSR to evaluate the potential impact of mandated delays on customer retention and ensure appropriate dispute resolution processes for customer if payments are mistakenly delayed.
Labour will also roll out at least 350 banking hubs, which will help people have free access to cash and wider banking services. They’ll also support the ongoing consultation on the FCA’s three proposals to address the advice gap and they’ll develop and implement a national financial inclusion strategy.
In terms of mortgages and savings, Labour will increase financial resilience by encouraging the mortgage sector to offer longer-term fixed rate mortgages and promote diversity of mortgage products. They’ll also review the legislative and regulatory barriers to enable a more widespread roll out of innovative savings programmes.
The Party also wants to introduce a new anti-fraud regulatory framework for tech companies and telcos, which includes sharing data with financial firms to enhance detection and prevention measures.
Baringa’s view:BNPL regulation has been touted for some time, so it should come as no surprise that Labour is interested in formalising this. Firms in scope should expect outcomes-based regulation that uses Consumer Duty as a foundation, building upon the product and price outcomes. Firms should also expect more focus on the detection and prevention of fraud, including cross-sector collaboration between telcos and financial services, as well as an increased focus on reducing APP fraud by introducing friction to payments. And finally, when it comes to increasing financial inclusion, firms should monitor how expectations around mortgage products and savings evolve, especially as new rules promoting innovation may be introduced. These measures could evolve in a similar way to the Mortgage Charter that was introduced in 2023 or even lead to significant fresh innovation opportunities. |
4. Lead the world in sustainable finance
Sustainable finance is a big-ticket item and Labour are keen to establish the UK as an international leader and collaborator on the Net Zero agenda through the G7, G20, International Platform on Sustainable Finance (IPSF) and other multilateral fora.
They propose reducing the price of energy through increased investment, cooperation, and information-sharing on clean power sources. They’ll also deliver a world-leading green finance regulatory framework through financial reporting on carbon footprint. And they’ll advance the plans for the UK Green Taxonomy leading to mandatory reporting for businesses in scope.
Labour will also fulfil the UK’s commitment to Sustainability Disclosure Requirements aligned with International Sustainability Standards Board and the TPT disclosure framework. They also want to evaluate a potential model for tracking green finance flows to enhance the availability, consistency, and reliability of sustainability-related data, helping to attract investment to the UK to finance the Net Zero transition.
Additionally, they’ll ask the FCA, PRA, and the Treasury to consult on allowing banks and insurers to issue covered bonds secured against green infrastructure and partner with the FS sector to support greening housing stock and offer affordable financial products for retrofitting and green mortgages.
Baringa’s view:Attracting capital toward the UK’s transition is critical—and the Transition Finance Market Review is already accelerating the UK’s role in mobilising capital globally. However, this is likely to be tempered as scrutiny on market conduct and greenwashing increases and financial institutions need to start ‘walking the walk’ on their commitments. Additionally, the UK Sustainability Disclosure Standards should allow more information to flow from corporates to financial institutions as the latter make capital allocation decisions. We’d advise financial institutions to think about how these standards are helping to build on market practice being set by the Corporate Sustainability Reporting Directive (CSRD)—especially when it comes to transition plans and nature. We also expect improved consumer sentiment will drive demand for sustainable retail financial products, allowing financial actors, including banks and insurers, to price these products and support consumers’ long-term transition more accurately. |
5. Embrace innovation and FinTech
FinTech is the foundation for financial services innovation—and Labour are keen to cement London as the world’s FinTech capital.
Part of this ambition involves setting international standards for the use of AI in financial services, deliver the next phase of Open Banking and increasing competition in retail payments, and advancing ongoing efforts to create a UK central bank digital currency.
They also want to work with regulators and industry to develop a roadmap for Open Finance, proving its value and fulfilling its potential to improve individual financial wellbeing. Additionally, they want to make the UK a global hub for securities tokenisation and establish a regulatory sandbox to test financial products to reach underserved communities.
Baringa’s view:UK FinTech has one of the most exciting reputations globally, and this is underpinned in Labour’s manifesto. Firstly, talent is front and centre. Retaining and attracting skilled engineers and overseas students is critical to fostering a dynamic and innovative FinTech industry. Secondly, establishing a balanced regulatory environment will be pivotal. Labour’s proposed Regulatory Innovation Office needs to champion the FinTech industry. There are positive nods already to enhancing frameworks that promote fair competition, financial inclusion, encouraging innovation, and consumer protection. But at the same time, stricter regulations could also increase compliance costs for FinTechs. In our view, regulatory changes shouldn’t be delivered in isolation. Instead, collaboration with the EU and other nations on legislation—as seen with Open Banking and Payments Services Directive legislation to date—will be critical to supporting international trade and encouraging foreign direct investment. There’s also a strong focus in the manifesto on the AI bill, designed to address data protection, security, and ethical concerns. This bill should be pragmatic around the usage of large language models and the difference between Generative AI and current models used in fraud detection and credit assessments. After all, this is not the only technology in town. Finally, funding of the UK’s FinTech industry is critical to the development and scaling of new innovations. There are good funding models in place for seed and Series A, which should continue with the National Wealth Fund, spinout seed funds, and match funding from the British Business Bank. Incentivising and unlocking growth capital both from domestic and foreign investment will influence long-term success of the industry. |
6. Reinvigorate capital markets
Labour views the UK’s capital markets as key to driving innovation and investment in the economy. In the past couple of years, we’ve seen a sustained reduction in investment in UK markets and undervalued stocks and a lack of liquidity, as well as companies de-listing from London with many favouring foreign markets. The party’s plan to reinvigorate capital markets centres on pensions and retirement savings as well as institutional investments.
The new chancellor plans to review the pensions and retirement savings landscape to evaluate whether the current framework will deliver sustainable retirement incomes for individuals. They’ll also enable greater consolidation across all pension and retirement saving schemes and empower the British Business Bank to invest more in growth capital.
Labour also plans to establish a British ‘Tibi’ scheme, modelled on the French, for define contribution funds to invest a proportion of their assets into UK growth assets on an opt-in basis. The aim here is to increase institutional investment in venture capital and small capital growth equity. They also want to reform Solvency UK—in an effort to unlock up to £100 billion in capital from insurers—and reinvest in infrastructure and green industries.
Baringa’s view:In an industry where an estimated 60%+ have retired in recent years with insufficient savings to sustain their planned retirement, continued review and reform of the pensions landscape is welcome. The move to free up pension assets to allow reinvestment in infrastructure could act as a genuine accelerator for growth, but it will be interesting to see the level of appetite and engagement from the industry in how they respond to the opt-in nature of the proposed investment. |
Navigating change begins with a conversation
Any change to the status quo is bound to cause some uncertainty. But in our view, Labour's plans are still relatively high-level, and we're not seeing signs of huge upheaval. The language in their Mission Economy and Financing Growth: Labour's Plan for Financial Services makes it clear that they're keen to work with the financial services sector. And with that comes opportunity.
We're here to cut through the noise, help you make sense of policy, and focus on what matters most to your firm. Our asset management, risk and regulatory compliance, insurance, and banking specialists scout out the opportunities that will embed resilience and innovation at the core of your firm. We help you make the most of new initiatives and keep you ready for whatever comes next.
Get in touch to see what a new government means for your firm.
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