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The UK-EU relationship in financial services Contents

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The UK-EU relationship in financial services

Chapter 1: Introduction

This inquiry

1.In January 2021, the predecessor to this Committee, the House of Lords European Union Committee, launched a coordinated series of inquiries, culminating in reports analysing the UK-EU Trade and Cooperation Agreement (TCA) and its implications for the future of UK-EU relations. Among these was a report by the former EU Services Sub-Committee, titled ‘Beyond Brexit: Trade in Services’, which concerned trade in services and connected issues between January and March 2021.1 That report included a chapter covering matters related to financial services.

2.This report is based on an inquiry undertaken by the European Affairs Committee, whose Members are listed in Appendix 1, between February and April 2022.

3.The scope of the inquiry included the impact so far on the UK financial services sector of the UK’s exit from the Single Market; the impact of the absence of a functioning framework for UK-EU regulatory cooperation; the future of cross-border financial services in the absence of equivalence; and the impact of regulatory divergence and agreements with third countries on UK-EU financial services trade. The future of the insurance sector and the Government’s proposed reforms to Solvency II fell outside the formal scope of this inquiry but have been mentioned where a failure to do so would result in an incomplete analysis of the facts at hand.

4.The inquiry involved six oral evidence sessions with experts, industry representatives and representatives of UK financial services regulators and the Bank of England between 8 February and 5 April 2022; an oral evidence session with the Economic Secretary to the Treasury and City Minister, John Glen MP, on 26 April 2022; and 12 written evidence submissions. We are grateful to all our witnesses, who are listed in Appendix 2.

5.This report is divided into five chapters, first setting out the general background to the financial services sector and how it has been affected by the UK’s exit from the EU, before examining equivalence, regulatory cooperation, regulatory reform and divergence, and future opportunities for the sector outside the EU.

6.To assist the Committee with this inquiry, and to provide the expertise necessary for the questioning of witnesses and the drafting of this report and its conclusions and recommendations, the Committee was pleased to appoint Professor Sarah Hall, Professor of Economic Geography in the Faculty of Social Sciences at the University of Nottingham, and a Fellow of UK in a Changing Europe as specialist adviser to the inquiry. The Committee is grateful to Prof Hall for her service.

Financial services in the UK

7.Financial services, the Committee heard, “are important in any economy, because they support activity in every other part of economic life: from holding and protecting money for customers, to channelling savings into lending to government, and much more.”2 This is particularly the case in a UK context. The sector is an important component of the UK economy: according to TheCityUK’s December 2020 report, Key Facts About the UK as an International Financial Centre 2020,3 the UK’s trade surplus in financial services was $77 billion in 2019, making it the world’s largest net exporter of financial services. In evidence submitted to this inquiry, the trade association UK Finance described financial services as “the UK’s most successful international export”. The organisation added that “the EU is a key market for those firms operating in the UK”4, which is supported by data from the Office for National Statistics (ONS): in 2019, 37% of the UK’s financial services exports went to the EU (compared with 30% to the USA over the same period).5

8.The UK’s financial services sector is not only significant to the domestic economy; it is also vital for the functioning of the wider global economy. Driven by its location, bridging time zones between the major financial services centres in East Asia and the Americas, and lying in close proximity to the EU, the world’s largest trading bloc, the sector plays a pivotal role in the world’s financial markets. Its participants “benefit from an ecosystem recognised for its openness, global connections and a culture of collaboration”6. English law, with its well-respected courts, its mature arbitration system, and its world-class legal services sector is frequently selected as the governing law for international contracts.

9.As a result, London has developed “the largest financial services cluster in the world” ,7 having “the deepest and broadest capital market in Europe, if not one of the two premier capital markets in the world”,8 and an insurance market “bigger than all of its competitors combined”.9

10.While financial services are most frequently associated with the City of London, Mayfair, and Canary Wharf, the sector is widely and deeply distributed across the UK. Lord Hill of Oareford, former European Commissioner for Financial Stability, Financial Services, and the Capital Markets Union, commented that one “cannot disassociate what is happening in the City from the broader economic policy framework for the rest of the country”10. Sir Jon Cunliffe, Deputy Governor of the Bank of England, noted that “There are other big centres [outside London]. Edinburgh is big for insurance, and for some of the ancillary services such as legal and accounting Birmingham is a big centre.”11 This was echoed by the Economic Secretary:

“I think it is often overlooked that two-thirds of jobs in financial services are outside London. With the fund management industry in particular there are hubs … in different parts of the United Kingdom—in Edinburgh, Leeds and Bristol and I visit them all. Some of the wider government policy with respect to freeports … is designed to encourage that.”12

11.It is inevitable, therefore, that the sector is a major employer. The City of London Corporation estimates that some 2.3 million people are employed in the financial and professional services sector, meaning that approximately 1 in 14 of all UK jobs are in financial services or its ancillary professions.13

12.The size and strength of the sector, and of its workforce, mean that is a significant contributor to the UK’s overall tax revenue. The City of London Corporation calculated that the sector generated more than 10% of the UK’s total tax receipts in 2019/20, a contribution of approximately £75.6 billion.14 The Economic Secretary told us that tax receipts had been resilient since the UK’s departure from the EU, remaining at “around £30 billion, or £75 billion in the broader sector.”15 The Minister undertook to provide a breakdown of the figures to confirm his position. We have not yet received them.16

13.The Committee asks the Government, in its response to this report, to provide a detailed breakdown of the figures for PAYE and corporate tax receipts for the previous five years, to support the Economic Secretary’s view in his evidence that tax receipts from the financial services sector have been resilient since Brexit.

Brexit and financial services: a brief recap

14.On 24 December 2020, the UK and EU announced that they had reached an agreement on the future relationship. The EU-UK TCA was published on the same day and came into force on 1 January 2021. The domestic legislation needed to give effect to the TCA was passed by the UK Parliament on 30 December 2020, prior to ratification. The TCA applied provisionally from 1 January 2021. It entered into force on 1 May 2021 after both Parties had completed their ratification processes.17

15.The TCA’s short section on financial services18 states that the UK and the EU shall:

• apply internationally agreed standards in the financial services sector;
• permit companies from the other Party to supply any new financial service as they would a domestic company;
• ensure that any relevant self-regulatory organisation observes obligations under other provisions of the TCA; and
• grant access to payment and clearing systems and official funding and refinancing facilities to financial services suppliers of the other Party established in their territories.19

16.Rachel Kent, Partner at law firm Hogan Lovells, characterised the provisions concerning financial services in the TCA as “anti-discriminatory measures” that “protect the status quo rather than giving [the UK’s financial services sector] something that was an additive.”20 However, the relative lack of detailed provision about financial services in the TCA had long been anticipated and discussed across government, in the media and within the sector, and this gave the sector the opportunity to make detailed preparations for the post-Brexit world.

17.The witnesses to the inquiry were, by and large, optimistic about the future of the UK’s financial services sector under the TCA. Although Miles Celic, Chief Executive Officer at TheCityUK, told the Committee that “more could have been done for financial services” in the TCA, he added that the industry had always taken the view that it would “hope for the best but plan for the worst” and that his organisation had been “very pleased at the end of the transition period that there was no effective disruption in the service being provided to clients or customers.”21 He added, “The mood, the perspective, within the industry at the moment is that there is no point trying to navigate by looking in the rear-view mirror. We have left the European Union. The challenge now is to make the best of that”.22

18.Dr Gerard Lyons, Senior Fellow at the think-tank Policy Exchange and Chief Economic Strategist at wealth management firm Netwealth Investments,23 was even more bullish, asserting that “the misplaced, widespread pessimism that prevailed before 2016 has proved ill-founded … London has retained its position as Europe’s leading financial centre and a major global centre”24. He highlighted London’s retention of its second-place ranking (behind New York) in the Z/Yen Survey,25 “widely seen globally as the best barometer of the league table of financial centres.”26

19.It would be wrong, however, to say that nothing changed at the end of the transition period. Some businesses have had to make operational and structural adjustments to be able to continue to conduct business between the UK and the EU. For the insurance sector, the London Market Group explained that: “A loss of financial services passporting rules and no financial services trading provisions within the UK-EU TCA has meant that companies have had to restructure in order to continue serving clients within the EU.”27 This means that “Both brokers and underwriters have … been compelled to create new EU based subsidiaries which have branched back into the UK … The question is whether the European authorities will still accept the handling of key insurance functions from London.”28

20.This analysis was supported by the think-tank New Financial which stated that, as of February 2021: “nearly 500 firms based in the UK have responded to Brexit in some form by relocating part of their business, staff, legal entities, or capital to the EU to ensure continuity of access to EU markets and customers in both directions.”29 New Financial also suggested that:

“the impact of Brexit depends heavily on the sector of activity. In some sectors, such as markets and investment banking, adapting to Brexit has been a complex and expensive exercise … In other sectors like asset management and insurance it has been an administrative headache … Some sectors of activity, such as FX trading, are largely unaffected.”30

21.In terms of the overall impact of Brexit on the financial services sector, New Financial estimated “that around 20% to 25% of UK financial services activity is related to the EU and that as much as half of that may need to relocate in some form to the EU over time.”31 However, as set out in paragraphs 29–30, some other witnesses took the view that the relocation of financial services activity was something that had now taken place rather than an ongoing process. Despite their concerns, New Financial believed that, given its status as one of only two global financial centres (alongside New York), the City of London “will continue to be the dominant financial centre in Europe”.32

What the trade data says

22.As noted in Paragraph 7, the UK runs a significant trade surplus in financial services. The Office for National Statistics Pink Book 2021 states that total UK financial service exports in 2019 were £62.66 billion (19.1% of all UK services exports) compared with imports of just £16.9 billion (8% of all UK services imports).33 This trade ratio is broadly replicated when looking specifically at the trade between the UK and the EU: exports to the EU of £23.3 billion against imports of £5.46 billion.

23.In 2019, as a snapshot of the relative importance of the EU as a market for the UK’s financial services prior to the UK’s departure from the EU, 37% of the UK’s financial services exports were to the EU, compared with 30% to the USA. For imports, the respective figures were 32.5% from the EU and 35% from the USA. The total trade in financial services between the UK and the EU during that period was worth £28.75 billion, compared with £24.75 billion for trade between the UK and the USA.34

24.There is some evidence, however, that the EU has been declining as a share of the UK’s total financial services trade. Between Q1 2019 and Q1 2021, UK financial services exports to the EU grew by 1.35%. However, over the same period, financial services exports to the rest of the world grew by 5.24%. At the same time, imports from the EU fell by 35.2%, resulting in the EU’s share of total UK financial services imports declining from 35.7% to 25.3%. In the assessment of the ONS, it is too early to untangle the impact of the COVID-19 pandemic from that of the UK’s exit from the European Union, but the latter may be a factor.35

25.In its analysis of the ONS data, the House of Commons Library concludes that:

“Between 2019 and 2020, the value of UK financial services exports to the EU fell by 8% … In 2020, the fall in financial services exports to the EU was most pronounced in Q2 and Q3, owing to disruptions in economic activity caused by the coronavirus pandemic … Financial service exports to the EU have continued to fall in 2021, falling by 5% between Q4 2020 and Q1 2021 and by a further 5% between Q1 and Q2 2021. Compared to 2019 and pre-COVID levels of trade, financial services exports to the EU were 31% lower in Q2 2021 than Q2 2019.”

In contrast to this:

“Financial service exports to non-EU countries continued to grow in the first quarter of 2021, growing by 8% between Q4 2020 and Q1 2021. While exports to non-EU countries fell in Q2 2021 compared to Q1, compared to 2019 and pre-COVID levels of trade, exports of financial services to non-EU countries were 5% higher in Q2 2021 than Q2 2019.”36

26.However, Miles Celic cautioned that, while the trade in financial services with the EU had declined since the end of the transition period, this reflected a trend that had been ongoing for several years beforehand.37 This analysis is supported by the ONS data, which shows that the share of the UK’s financial services exports going to the EU had fallen from 44.2% in 2015 to 37% in 2019 and further to 34.7% in 2020. This might suggest that the implementation of the TCA, and the loss of the passporting rights enjoyed prior to the end of the transition period, are not necessarily the primary drivers of the fall in exports to the EU.

Job and business moves

27.Miles Celic cited the report prepared for TheCityUK in 2016 by management consultants, Oliver Wyman, stating that the report calculated that a “very hard”38 Brexit would result in around 75,000 jobs leaving the UK’s financial services sector over a period of 5 years.39 Jobs leaving the UK since 2016 have also been tracked by the professional services firm, EY. Andrew Pilgrim, UK Government and Financial Services Leader at EY, explained to the Committee that his organisation tracked job movements “on the basis of public announcements” from 222 firms.40 On the basis of this methodology, as of the latter part of 2016, EY calculated that 12,000 jobs had been announced as moving from the UK to the EU.

28.At the time of his appearance before the Committee, however, Andrew Pilgrim reported that tracked job moves out of the UK so far stood significantly below that late 2016 figure, at 7,400.41 During the course of this inquiry, the number was further revised down to 7,000.

29.Dr Lyons was confident that the final number of job moves would not increase much further:

“firms have had to take action based on their own business model. Firms that have a presence in London but previously served EU-based clients from London have had to move some of their staff to the continent, which in many respects was expected. The general perception across the City is that that move has now taken place.”42

30.This optimistic outlook was shared by Michael Dobson, the then43 Chairman of asset management firm Schroders plc. Mr Dobson stated that only one job in his firm had moved out of the UK44 and that the “results for the industry have been considerably less bad than some people suggested they would be in the lead-up to the Brexit referendum. There were estimates of double what has happened in job losses from the City.”45

31.There was also a recognition among witnesses of the effect of the Temporary Permissions Regime. Under this regime, the Financial Conduct Authority (FCA) allows EU businesses that were using EU passporting rights to operate in the UK prior to the UK’s departure from the EU to continue to do so until December 2023. Both Dr Lyons and Caroline Dawson, Partner at law firm Clifford Chance, noted that, as the date for the expiry of the scheme in December 2023 approached, many EU businesses were taking advantage of the regime to establish a permanent presence in the UK,46 thereby potentially adding to the overall number of jobs within the UK financial services sector. New Financial, however, was sceptical about this, calling it “highly unlikely” that the establishment of UK offices could “offset relocation activity in the other direction”, on the basis that using the Temporary Permissions Regime “is cost free whereas opening an office is not.”47

32.Other witnesses also expressed caution. Sam Woods, Chief Executive of the Prudential Regulation Authority (PRA), noted that job moves have “not been a non-event, and nor are we at the end of it” but said that “so far, it has been manageable.48 Sir Jon Cunliffe similarly took the view that the impact “is not finished yet … it will be a process of years.”49 New Financial argued that the industry was currently in “the second of three phases of Brexit-related relocation”, and that further relocations might follow as the EU sought to repatriate activity conducted in the UK over the medium-term.50

33.Witnesses also warned against complacency over the number of job moves. Lord Hill said: “7,000 [jobs] is obviously at the low end … But that is not a reason to conclude that everything is fine and it has all settled down and we do not need to worry or try to make ourselves more competitive.”51

34.With reference to the 75,000 figure originally cited by his organisation, Miles Celic also reminded the Committee that this was expressed as being over a period of five years from the point of the UK’s departure from the EU, meaning the time to assess its accuracy would therefore be “in about three and a half years’ time”.52

35.Several witnesses also cited COVID-19 and its impact on working practices as one reason for jobs having not moved out of the UK so far,53 and warned that, as travel restrictions eased and in-person working resumed, the picture was likely to change.54

36.Witnesses also expressed concern about Brexit’s impact on jobs in terms of the opportunity cost to the UK and its financial services sector. In its written evidence to this inquiry, The City of London Corporation stated that “wider concern comes not from jobs leaving the UK, but new jobs in the EU being created in future that might otherwise have been created in the UK.”55 New Financial echoed this, adding:

“In the past 10 years, tens of thousands of back-office jobs in banking and finance have been created in countries like Poland, Hungary, Portugal and the Baltics where firms have access to highly qualified but much cheaper staff in much cheaper offices. In this sense, Brexit may accelerate a wider restructuring of the industry, and support staff in cities like London, Bournemouth, Birmingham, Belfast, Glasgow and Manchester may be at risk.”56

37.Lord Hill also warned that the UK should not be complacent about competition from outside the EU:

“while we are both kicking bits out of each other and cutting off our nose to spite our face, the United States is opening up a bigger lead, as is Asia. For London, when it thinks about itself as a global financial centre, I think that we should be concentrating on the US and what is happening in other global financial centres … The international competition is not coming from within the EU, it is coming from the rest of the world.”57

38.Further uncertainty about the potential for further job moves comes from the risk of legislative and regulatory changes on the part of the institutions of the EU and Eurozone. In spring 2020, the European Central Bank (ECB) launched a desk mapping review, investigating “booking and risk management practices across trading desks” with the aim of “ensuring that third-country subsidiaries have adequate governance and risk management capabilities and do not operate as empty shells.”58 On 19 May 2022, following the conclusion of the evidence-gathering stage of this inquiry, the ECB announced that, on the basis of its finding from the first phase of this review, “21% [(56)] of the 264 desks assessed during the first phase warranted targeted supervisory action.” The ECB further warned that the review:

“does not mark the end of the ECB’s supervisory scrutiny of incoming banks’ post-Brexit operating models … This work has a key overarching objective: to ensure that all … [standalone EU legal entities subject to supervision under the Single Supervisory Mechanism] … have prudentially sound risk management arrangements and a local presence which enables effective supervision and is commensurate with the risks they originate.”59

39.This raises the very real prospect of further action on the part of the ECB that will have a material impact on the UK financial services sector’s business models and operations, and a concomitant effect on jobs within the sector.

40.In terms of the Government’s view of the impact so far of Brexit on the number of jobs leaving the UK’s financial services sector, the Economic Secretary said he broadly accepted EY’s 7,000 figure, saying: “The UK financial services sector … has not experienced the haemorrhaging of jobs that perhaps many anticipated when I came into office in January 2018. There have been modest movements of people to the continent”. He added that he did not think it “inevitable that we will see lots more jobs move.”60

Fragmentation of the EU financial services sector

41.In terms of the destination of jobs moving from the UK to the EU, there was general consensus among witnesses that no single EU city had emerged as the primary choice for relocations. Peter Bevan, Partner at law firm Linklaters, observed: “Inasmuch as new jobs have been created in the EU, they have been in multiple centres and split across the cities … There is no other single location that is so far growing in a way that would rival London”.61

42.This was treated as indicative of a wider trend of the fragmentation of the EU’s financial services sector, and a failure to consolidate job and business moves from the UK in a single EU centre with the resources and infrastructure to challenge the UK’s dominance. Some witnesses saw this fragmentation of the EU financial sector across multiple EU centres as a strategic decision, with Miles Celic commenting that:

“[what] the European Union seems to have adopted, at least for now, is a multicentre financial centre approach. There will be activity particularly in asset management, say, in Luxembourg. There will be investment banking in Frankfurt. There will be activity taking place in banking in Ireland, exchange activity in Amsterdam, work in Paris and so on.”62

However, his view was that, if “the EU were successful in creating a multicentre approach … that would be historically and economically unusual.” He contrasted it with the advantages the UK and London enjoy, citing a “cluster effect … an agglomeration effect that you get in a centre like London. There is the rule of law, English law, common law—a huge advantage—commercial dispute resolution, time zone, language, high-quality regulators that are well regarded globally.”63

43.For these reasons, most witnesses agreed that the EU financial services sector currently posed little direct threat to the dominance of the UK sector in the international markets. Dr Lyons saw none of the EU financial centres as having “the broad-based strength or depth to challenge London.”64 Lord Hill agreed that “no single European centre has the critical mass that we have”, adding that London was “resilient.”65 However, despite this resilience and the advantages conferred on the City by “the sheer concentration of people and scale in London who still want to be in London”, Lord Hill urged against complacency, stating that there is “quite a lot to do to shore up that position and to try to equip ourselves to compete in new areas that are not yet regulated.”66

44.On the other hand, Stéphane Boujnah, Chief Executive Officer of Euronext,67 did not see the aforementioned “cluster effect” as quite so relevant in the post COVID-19 world. He argued that “COVID, as much as Brexit, has changed the way finance … [operates] over the past two years”, meaning that the “concept of having teams located in a single location is not as relevant as it used to be. In reality, distributed but integrated and highly interconnected financial centres are working extremely well together”.68

45.Other witnesses, however, saw real risks in the trend towards fragmentation of the financial services sector across the EU, interfering with the synergetic relationship between the sectors on either side of the English Channel and Irish Sea that risked mutual harm in the longer term. In Lord Hill’s view,

“the consequence of that greater fragmentation is that, crudely, the cost of raising capital increases. That means Europe’s businesses find it harder to fund the recovery that the European economy needs to have. I think that it is a retrograde step … I do not think that it leads to a stronger system.”69

46.We welcome the fact that, overall, the UK financial services sector remains optimistic about its prospects for the future, and that significantly fewer jobs have so far left the sector than had been anticipated. This demonstrates both the continued strength and the resilience of the sector in the UK.

47.We warn, however, against any complacency in this regard, as it is not clear whether the full impact has yet played out. We note that there are many factors, both ongoing and on the horizon, including EU regulatory and political decision-making, that may have a significant impact on the sector, with the risk that further jobs will move out of the UK.

48.The fragmentation of job moves across EU financial centres highlights that no single EU financial centre has so far emerged as a serious rival to London. Nevertheless, the Committee is concerned that fragmentation could raise cost and reduce liquidity for businesses served by the UK and EU financial services sectors. We urge the Government to work with the EU, and its institutions, to ensure that London is able to maintain the depth and liquidity needed in order to continue to function as the prime source of capital for the European market.

Asset and infrastructure moves

49.In contrast to his general optimism about the movement of jobs, Dr Lyons was much less sanguine about the loss of financial infrastructure,70 declaring that this an “area that we cannot be complacent about and that does not get enough attention.”71 Similarly, Andrew Pilgrim of EY noted that, by December 2021, “£1.3 trillion-worth of assets72 had been transferred from the UK to the EU”.73

50.From an EU-based perspective, Stéphane Boujnah did not attribute this entirely to the UK’s exit from the EU. He noted on a related point that “more international companies, which in a previous world would have considered London as a venue for their international listing, are now considering Euronext”. However, he saw this as being due to a combination of factors: “there is no straightforward distinction between the two factors of the corporate dynamic and competition between Euronext and the London Stock Exchange Group versus the sole Brexit impact.”74

51.We note the movement of assets and infrastructure out of the UK. We ask the Government to set out what steps it is taking to monitor this and to ensure that it does not harm the competitiveness, profitability, or operational capabilities of the UK’s financial services sector. We also ask the Government to set out in its response to this report what assessment it has undertaken of the costs and risks to the sector and the wider UK economy by the movement of assets and infrastructure out of the UK following Brexit.

UK Government policy for the future of financial services

52.The Economic Secretary set out the Whitehall architecture in terms of departmental and ministerial responsibility for the sector, telling the Committee that, within the Treasury, he is “responsible for financial services and financial services policy” and works “closely” with the Foreign, Commonwealth and Development Office and the Department for International Trade (DIT): “I take the lead and we reach out to the Foreign Office and DIT where appropriate, and they reach out to us, to me and to my office, where appropriate.”75

53.The Government has consistently stated its aim of seizing the opportunities of Brexit. In respect of financial services, the Government’s policy aims have been most comprehensively elucidated in the Chancellor of the Exchequer’s Mansion House Speech of 1 July 2021,76 and the accompanying policy paper, A new chapter for financial services (published on the same date).77 These interventions set out the wider strategy that the Government intends to pursue for the future of UK financial services outside the EU. The speech and paper cover a range of areas, including regulation; the positioning of the UK as an internationally open globally competitive financial hub; the opportunities to develop new trading relationships with other third countries outside the EU, notably Singapore, the US and Switzerland; the opportunities for the development of financial technology (‘FinTech’) and digital finance in the UK; and the development of green finance through positioning the UK as the world’s first Net Zero aligned financial centre.

54.In his speech, the Chancellor framed the Government’s approach as applying five principles:

• “Openness: we believe in open societies and free economies founded on democratic values. Only the creativity, ingenuity and dynamism of free individuals can deliver lasting economic growth.”
• “A rules-based international order: openness and freedom must be protected by rules that are followed and enforced.”
• “A sovereign approach: the UK will use our new freedoms to follow a distinctive approach founded on UK law, protected by independent UK regulators, designed to strengthen UK markets.”
• “Multilateral engagement: we will engage and lead in multilateral settings, helping to solve the world’s most challenging problems.”
• “Real change: engagement alone isn’t enough; our international actions must make a tangible difference to people’s lives.”

55.These principles are supplemented in the accompanying policy paper by a number of policy aims for the remainder of this Parliament, summarised on the final page as being to have:

(1)“Secured best-in-class financial services agreements with new partners and deepened existing relationships, supporting stable and open markets.”

(2)“Put in place the building blocks to enable financial markets to support the transition to Net Zero in the UK and across the world.”

(3)“Delivered regulatory changes to harness the most innovative and cutting-edge technology in financial services.”

(4)“Tailored the regulatory framework to ensure the UK is recognised internationally as one of the safest and most competitive places to locate financial services businesses and activities.”78

56.The independent report of the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR), commissioned by the Prime Minister and published on 16 June 2021, recommends a comprehensive review of the UK’s regulatory framework for financial services, stating that: “the tangled web of EU-derived regulation needs a thorough overhaul … [involving] moving away from the EU’s code-based system to a more principles-based approach based on common law.”79

57.The TIGRR report also calls for the reform of the rules underpinning the provision of capital to better support the scaling up of growing companies with the aim of unleashing “latent innovation across the economy”. It also calls for reforms to enterprise investment schemes and reporting to “help further the UK’s position.”80

58.More recently, the Government announced in the Queen’s Speech on 10 May 2022 that it will be bringing forward a new Financial Services and Markets Bill in the current parliamentary session. The Bill will include “Revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK.”81

59.We support the Government’s broad policy aims for the financial services sector, as far as they go, and hope that these will be enacted in a proportionate and evidence-based way.

60.We ask the Government in its response to this report to set out the specific steps it has taken and is proposing to take to fulfil the ambition and promise of the aims set out in the Chancellor’s 2021 Mansion House Speech and in ‘A new chapter for financial services’.

61.Despite our broad support for the Government’s policy aims, it is important that the Government ensures financial services policy is not focused too heavily on the City of London alone. We therefore ask the Government to provide a full explanation of how it intends to support those parts of the sector operating throughout the rest of the UK with respect to the UK’s evolving relationship with the EU.

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