RISHI Sunak has defended sweeping changes to the UK’s post-Brexit financial services sector amid warnings they could lead to reckless conduct in the City.

The Prime Minister insisted regulation would remain “robust” despite his Chancellor relaxing banking safeguards introduced after the 2008 financial crisis.

Meeting business chiefs in Scotland’s capital, Jeremy Hunt said his “Edinburgh reforms” would “turbocharge” growth, including by easing capital requirements for smaller lenders.

The 30 changes include a loosening of ringfencing rules separating risky investment banking from retail banking, and the regime for how bankers are held directly accountable for issues on their watch.

Labour warned of a “race to the bottom” and said the changes would introduce “more risk and potentially more financial instability”.

Mr Hunt said: “We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world.

“The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses.

“And we will go further – delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences.”

Asked if he was being reckless in relaxing rules on investment banks, the Prime Minister told broadcasters during a visit to RAF Coningsby in Lincolnshire: “No, the UK has always had and always will have an incredibly respected and robust system of regulation for the financial services sector. Of course that’s the right thing to do.

“But it’s also important to make sure the industry is competitive. There are a million people employed in financial services and they’re not just in London, in the City; they’re spread across the country, in Edinburgh, in Belfast, in Leeds, in Bournemouth.

“Today’s reforms will ensure the industry remains competitive, we can create more jobs, but of course this will always be a safe place where consumers will be protected.”

 

SNP MSP Kenny Gibson said it was "astonishing" that Mr Hunt was focussed on helping bankers while ordinary families struggled with the cost of living crisis.

"This, yet again, serves to underline that the only way to create a fairer society that works for everyone who lives in Scotland is to become a normal independent country.

"Removing banking regulations – designed to protect savers and the taxpayer – was never one of the many so-called benefits of Brexit the Tories promised us, nor was it plastered over the side of a bus.

“It risks repeating the catastrophe of the financial crash in 2008, which led to crippling Tory austerity for millions of households across Britain.

"It's abundantly clear the Tories cannot be trusted when it comes to the economy. It was just over two months ago that they plunged the UK into an economic crisis when they announced tax cuts for the super-rich – and then demanded the Scottish Government do likewise.

“Ordinary people were left to pick up the bill for the Tories’ economic incompetence then and it will be ordinary people left to pay the price again for this reckless ripping up of regulations.

"People in Scotland deserve far better than Westminster governments they don't vote for, and who choose their rich banking pals over ordinary people. That's why more and more Scots are backing a fairer future as an independent country that works to help all of its people."

Fran Boait, executive director of the sustainable economy campaign Positive Money, said: “Behind the spin, today’s announcements amount to wide-ranging deregulation that threatens to destabilise an increasingly fragile financial sector, with huge risks to the public and little benefit.

“Ring-fencing for banks was one of the few protections brought in after the 2008 crisis, so for the Government to be watering down these rules is extremely concerning.”

The raft of reforms comes as the City of London has seen trading with the EU hit by Brexit, with Amsterdam overtaking London as Europe’s largest trading hub last year.

The Chancellor’s shake-up includes a commitment to make “substantial legislative progress” on repealing and replacing the 2016 EU Solvency II directive next year, which is hoped will unlock more than £100 billion of private investment.

The directive sets out how capital much EU insurance companies must hold to reduce the risk of insolvency.

Mr Hunt also promised to reform the UK prospectus regime to support stock market listings and capital raises, reforming rules on real estate investment trusts and reviewing provisions on investment research in the UK.

Labour shadow city minister Tulip Siddiq said: “That this comes after the Tories crashed our economy is beyond misguided. Reforms such as ring-fencing and the senior managers’ regime were introduced for good reason.

“The City doesn’t want weak consolation prizes for being sold down the river in the Tories’ Brexit deal, nor more empty promises on deregulation.

“Its competitiveness depends on high standards, not a race to the bottom.”

Liberal Democrat Treasury spokeswoman Sarah Olney said: “It’s completely tone-deaf that this Government is hiking taxes for hard-working families, while slashing taxes and boosting bonuses for the banks. Our financial services need good and smart regulation, not more promises of slashing red tape, or a race to the bottom.”

But Chris Hayward, policy chairman at the City of London Corporation, said major reform of the UK’s financial sector is something to be “excited” about.

He told BBC Radio 4’s Today programme: “This is not about deregulation, this is about growth. We need the help of good growth and good regulation at the same time, they are two sides of the same coin. It’s not a race to the bottom, in my view, it’s a chance to actually grow our economy and I think we should be very excited about it.”

David Postings, Chief Executive of UK Finance, said: “The banking and finance industry is the engine of our economy, delivering jobs and investment up and down the country. 

The comprehensive package of reforms the Chancellor has announced today, coupled with the landmark Financial Services and Markets Bill, form a major step in ensuring the sector remains strong and internationally competitive.

“We will continue to work with the government in supporting the economy through the current challenges and in creating growth for the future.”