Innovate Finance analysis of the Chancellor’s first Mansion House speech and announcements made
- Reform of UK regulatory approach: focus on economic growth and clearer responsibilities
- National Payments Vision sets agenda for future payments and open banking
- Further steps on unlocking investment in unlisted growth firms
On Thursday (14 November), Rachel Reeves gave her Mansion House speech - an annual address delivered by the UK Chancellor of the Exchequer to the financial services industry. In this much anticipated set piece, and a vast set of announcements that accompanied it, the Chancellor set out her Government's vision for financial services, and specifically its agenda for international competitiveness of the sector and its approach to regulation and regulators. After some disappointment that her Budget last month was solely focused on tax rises (falling on business, entrepreneurs and their teams), this rebalanced the equation with an agenda that focused on investment, pro-growth regulators and enabling innovation.
In the audience for the speech was Innovate Finance’s CEO, Janine Hirt, who made the following comments in response:
“The Chancellor’s Mansion House Reforms offer vision and action to renew the competitiveness of the UK as the global centre for FinTech: increasing investment, ensuring our regulators are pro-growth, and enabling further innovation in financial services. The regulatory reforms will take forward key priorities which have been identified by our Innovate Finance FinTech community of founders and our Unicorn Council, including growth-focused remit letters, a proportionate Senior Managers certification regime, clearer expectations from the Financial Ombudsman Service, and removing overlap between regulators. On investment, the PISCES private equity market and consolidation of DC pension funds will unlock significant UK investment in high growth firms.
“The National Payments Vision also provides a North Star for government, regulators and industry to catalyse a world leading UK payments ecosystem based on competition, innovation and choice. The commitment to scaling open banking payments in e-commerce and introducing digital verification services should provide further confidence for investors and innovators to bring forward solutions that improve productivity, customer experience, security and inclusion.”
There was a lot here for FinTech, with the Government taking forward a swathe of policies we have called for on behalf of members.
What’s next?
The Government will now develop an overarching Financial Services Growth and Competitiveness Strategy - which the Chancellor confirmed will include FinTech as one of five priority sectors, alongside sustainable finance, asset management and wholesale services, insurance and reinsurance, and capital markets. This will be published in the Spring, drawing on a Call for Evidence which Innovate Finance will be responding to on behalf of members.
⭐ Policy win: FinTech has been confirmed as a priority sub-sector for the government's FS strategy and de facto its industrial strategy.
We will be engaging on the detail and the delivery of the whole Mansion House package of reform. Following the Budget we will also continue to press for a more favourable fiscal environment for starting and scaling. And we will continue to make the case for a priority that was rather missing in an otherwise pro-inovation package: an unambiguous commitment to enabling transformation based on digital assets and blockchain.
Detail
Our longer read is set below, analysing the Mansion House reforms around three core themes:
- Increasing investment
- Ensuring our regulators are pro-growth
- Enabling further innovation in financial services.
1. Increasing investment
Mansion House Compact and Pensions: The Chancellor re-committed the government to the Mansion House Compact as well as announcing the consolidation of around 60 local government pension schemes into ‘British Wealth Funds’ to unlock £80 billion for investment in UK businesses and infrastructure. This is welcome and should help to enable greater investment in private equity including FinTech. In comparison, ‘megafunds’ in Australia currently invest 10 times more in private equity compared to Defined Contribution schemes in the UK.
The Chancellor also announced progress by the British Business Bank (BBB) in creating vehicles to enable institutional investors to invest in unlisted equities:
- British Growth Partnership has secured the support of two UK pension funds, Aegon UK and NatWest Cushon, to invest in the UK growth companies of the future.
- Long-Term Investment for Technology and Science (LIFTS), with BBB completing its £250m investment alongside Phoenix Group with Schroders Capital, to create a new investment vehicle accessible to pension funds and other institutional investors.
⭐ Policy win: We have called for Government action to mobilise the Mansion House Pensions Compact including consolidation of DC pensions and British Business Bank vehicles for pension funds to invest in UK tech.
PISCES (Private Intermittent Securities and Capital Exchange): The Chancellor announced a commitment to set up intermittent trading of unlisted shares - the world’s first private company stock market.This will allow firms to access funding from institutions and sophisticated investors without the regulatory burdens and costs associated with traditional IPOs. By bridging the gap between private and public markets, Pisces could provide a stepping stone for companies considering an eventual IPO.
PISCES has the potential to be a successful international marketplace for pre-IPO funding. In the Autumn Budget the Chancellor adopted Innovate Finance's recommendation that Stamp Duty should not apply to the purchase of shares in PISCES, enabling employees and early stage investors to access liquidity for their shares in private companies (⭐ Policy win). There are however some structural changes required to the currently proposed PISCES rules in order for the concept to be welcomed by FinTech issuers. These include:
- amending the taxation rules to allow staff shares issued under an EMI share scheme to be saleable via a PISCES transaction - an issue we have raised and which is acknowledged in the Treasury response, which invites further engagement with stakeholders on the interaction between PISCES and EMI.
- ultimately allowing primary issuance of shares - the initial proposal is only to allow secondary share sales, which will limit deal volumes
2. Ensuring our regulators are pro-growth
Steering the regulators on growth and innovation: The Chancellor has issued ‘Remit Letters’ to the regulators, in which she stresses the “need to enable and support more responsible and informed risk taking across the economy” and her desire to see:
- “Innovative new firms are supported to enter the market, and existing firms are enabled to innovate and invest in new technologies, including the safe adoption of Artificial Intelligence, thereby raising productivity”;
- “Firms have a positive experience of engaging with the FCA and PRA from the point of initial application or inquiry, and that administrative burdens on firms are streamlined as far as possible”
⭐ Policy win: In our FinTech Plan for Government, we said HM Treasury should use its remit letters to ensure regulators have regard for designing world leading digital regulatory environments that support economic policy.
Streamlining Senior Managers and Certification Regime (SMCR): The Chancellor acknowledged that that SMCR has become overly costly and administratively burdensome and announced that the Treasury, the FCA and the PRA will shortly publish the outcomes of a review including a commitment to consult on removing the current Certification Regime from legislation.
⭐ Policy win: Innovate Finance and members of the Unicorn Council for UK FinTech have called for improvements to authorisations including the Senior Managers regime, which in particular can have a disproportionate impact on smaller firms when senior roles are held up by FCA.
Review of Financial Ombudsman Service: The Chancellor announced that the Financial Ombudsman Service’s framework will undergo reform, so that it continues to allow consumers to get redress while giving clearer expectations around its decisions for consumers and for financial services firms. The FCA has launched a Call for Input on modernising the redress system, which closes on 30 January 2025.
⭐ Policy win: We have previously called for the FCA to ensure FOS has a shared and common understanding of regulatory requirements and expectations so firms can have greater certainty in the way that complaints are handled and adjudicated.
Independent review of the APP fraud reimbursement scheme: HM Treasury and the Payment Systems Regulator has provided further detail on plans for a review of the reimbursement scheme 12 months after implementation - for the first time committing to this being independently-led.
3. Enabling further innovation in financial services
National Payments Vision:
The long-anticipated National Payments Vision follows Joe Garner’s Future of Payments Review - of which a key recommendation was a clear overall strategy. The Government has now set a vision of a “trusted, world-leading payment ecosystem underpinned by next generation technology, offering users a choice of payment methods”.
Initial immediate actions will focus on two areas identified by Joe Garner:
- The regulatory framework: removing overlap and improving coordination.
- This will be included in payments specific HM Treasury remit letters to the regulators - and for the first time a Treasury remit letter has been issued to PSR (NB this is possible thanks to Innovate Finance persuading Treasury to include this in the 2023 Financial Services and Market Act).
- A new Payments Vision Delivery Committee will be set up, chaired by Gwyneth Nurse (DG Financial Services at Treasury) with Sarah Breedon (Bank of England), Dave Ramsden (Bank of England), David Geale (PSR) and Nikhil Rathi (FCA).
- Building resilient retail infrastructure: tasking regulators to draw up proposals by Q2 2025 on necessary upgrades to payments infrastructure - specifically the Faster Payments System (FPS); identifying longer term infrastructure needs; and what governance and funding is needed (including reform of Pay.UK). This is perhaps the final nail in the coffin of the New Payments Architecture as a project: the focus is first on urgent fixes to FPS, including support for open banking payments; and then a new approach to developing retail payments infrastructure including reform of Pay.UK. What is encouraging is that the NPV specifically asks the Bank of England and PSR to focus on the following in developing its approach to infrastructure: “serve equitably a diverse array of market actors”; a “clear commitment to Open Banking”, and “the need to support wider market innovation and competition”.
Prioritisation of Open banking: the NPV makes a full commitment to unleashing open banking payments in the UK: “It is the government’s ambition that seamless account-to-account payments are developed as a ubiquitous payment method” and “unlocking Open Banking enabled account-to-account payments for e-commerce to be a strategic short to medium term priority”. It goes on to affirm that the government's ambition is for the UK to be a world leader in Open Finance.
The end of JROC: It also confirms that regulatory responsibility for open banking will be transferred from the ‘Joint Regulatory Oversight Committee’ (JROC) of FCA, PSR, CMA and HM Treasury to sit solely with the FCA: a significant streamlining which will hopefully provide clearer accountability and faster delivery; this also makes a clear demarcation between open banking as a data overlay to underlying infrastructure such as payments systems.
The new JROC? The longer term programme will emerge in 9-12 months: the Payments Vision Delivery Committee is tasked with developing a roadmap for the long term. The longer term roadmap will be based on three pillars:
- Innovation
- Competition
- Security: resilience and preventing fraud and economic crime.
The Vision confirms a continuation of Bank of England work on designing a Central Bank Digital Currency and testing it, to enable a decision on whether to proceed - which would require an Act of Parliament, in due course.
The Vision does highlights ongoing work to introduce a UK framework for digital verification, which is particularly welcome in the context of fraud prevention and development of wallets.
It also commits to take forward Joe Garner's call for reviewing Strong Customer Authentication to remove overly prescriptive standards.
What wasn’t mentioned in the National Payments Vision: The Vision doesn't mention stablecoin or other crypto assets, with the exception of referencing these as ‘next generation technologies’. Treasury has told us however, that there will be more on this in the coming weeks and further details on digital assets are due soon. We have emphasised with officials the need to make progress in these areas.
Equally the Vision doesn't say much about wallets, as the emerging consumer access point for retail payments. They largely reference ongoing FCA and PSR work in this space.
⭐ Policy wins:
- We called for publication of a National Payments Vision this autumn
- Focus on innovation, competition and choice mirrors our priorities
- We also called for greater coordination of regulators
- We called for greater ambition in driving forward A2A Open banking payments in ecommerce
Tackling Fraud at source:
The previous government published a fraud strategy in May 2022 and the Chancellor has now announced her government will publish a new expanded fraud strategy (to be developed over the coming months). Ahead of this, the Chancellor, Home Secretary and Secretary of State for Science, Innovation and Technology have written to the tech and telecommunication sectors calling for them to go further and faster in reducing the scale of fraud taking place on their platforms and networks – with an update on progress requested by March 2025, before the expanded strategy is published.
Innovate Finance has welcomed this as a step in the right direction and called on Ministers to go further by introducing shared legal responsibility and liability for social media and telecommunications firms, making them responsible for reimbursing victims of fraud; and to set up a National Anti Fraud Centre to coordinate across government, crime agencies, regulators and industry, with an ambitious target to halve payments fraud by 2030 and data sharing to enable real-time detection and mitigation of fraud. You can read our response to this here.
Joined up action and clear regulator responsibility: The remit letters to regulators also call for greater coordination on tackling fraud and the FCA has been tasked to lead on payments fraud, recognising its role across economic crime. The National Payments Vision clarifies the roles of the FCA and PSR in terms of fraud, with the former being given the responsibility of lead regulator for conduct of payment service providers. The FCA will take the lead in managing overlaps between its functions and those of the PSR concerning fraud policy.
Data sharing: The Payments Strategy also supports further data sharing to spot and stop fraud and the PSR, in their response to the National Payments Vision, has also committed to support data sharing.
⭐ Policy wins: Innovate Finance has campaigned for
- Coordination across law enforcement, regulators and industry
- Tech platforms and telcos to do more
- Support for data sharing to combat fraud
- FCA to take the lead on fraud
Enabling more AI advice: Advice/Guidance Boundary Review consultations:
The Chancellor announced forthcoming consultations by the Financial Conduct Authority, on helping households make better-informed decisions about their finances. The FCA also provided an update to this on their website.Their first consultation, in December 2024, will focus on how pensions support can be widened and work for more pension savers.The FCA has also committed to develop related proposals for targeted support in relation to wider investments by the end of H1 2025.
⭐ Policy win: In our FinTech Plan for Government we called for FCA work to ensure the advice/guidance boundary enables and unlocks widespread provision of AI enabled financial advice to households and citizens
Digital Gilts: also announced was a world first trial of Digital Gilts, based upon blockchain technologies, to be issued by Debt Management Office within two years. Digital Gilts have several benefits including faster settlement, programmability and increased efficiency and improved security. This provides welcome commitment from the UK Government to supporting the blockchain based transformation of financial services and markets.
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Innovate Finance policy team
Adam Jackson - Chief Strategy Officer
Mike Carter - Senior Policy Advisor
Andy Thornley- Head of Regulatory Affairs
Megan Jenkins - Policy and Public Affairs Manager
Christopher Foo - International Policy Associate
