Financial Services Executives Toast City of London’s Prospects Under PM Sunak

When senior figures from the City of London gathered for a dinner in July at the historic Mansion House, they broke into applause for someone who was not there. John Glen had just resigned as the government’s City minister, citing a “complete lack of confidence” in Prime Minister Boris Johnson.

Last night, the grandees were back, and the talk was again of the well-respected Glen. Rishi Sunak, the new prime minister, has brought his old friend back with him, into the more senior role of chief secretary to the Treasury. There’s also a new figure in the mix, Andrew Griffith, who replaced Glen as City minister under Liz Truss and took control of the deregulation agenda that is meant to boost the growth of financial services.

UK Chief Secretary to the Treasury John Glen.

The mood was one of relief that Liz Truss has been replaced by Sunak as prime minister. His return, following on from Jeremy Hunt’s appointment as Chancellor of the Exchequer, has restored some confidence and stability in financial markets.

“It is a strong and respected economic team that has the experience to stabilize markets and make decisions about the difficult economic circumstances in a proportionate way,” Douglas Flint, chairman of asset manager Abrdn Plc, said in an interview.

But the past four months of political drama and market gyrations have left financial firms uncertain about the approach ministers will take to the City. Top of the list of worries is tax. As banks are set to make growing profits amid rising interest rates, there has been speculation the Treasury may hit them with higher taxes to help plug the government’s financial hole.

According to analysis published Friday by UK Finance, the banking lobby group, that would make Britain significantly less competitive than other cities. There is a risk London banks would be paying almost 50% in direct and employee taxes by 2024, compared to 38.5% in Frankfurt and 27.4% in New York.

Griffith Appointment

There are also concerns about Griffith — a figure who has divided the City since he took up the job in September and remains a rare survivor from the Truss regime. Some worry the former businessman’s ideas are now dead under new boss Sunak. Others have the opposite anxiety. That he will be allowed by Sunak and Glen to push through a radical agenda that may hurt the financial industry in the longer term through spats with regulators and criticism from lawmakers.

For Crispin Odey, the manager of Odey Asset Management and a donor to the Conservative Party, the appointment of Griffith is positive. “I’m actually quite excited by the way he is tackling it,” Odey said in an interview. “He is looking at things on first principles and that’s a good thing as we need to be open to business with the rest of the world.” It should bring regulations back to the British system of “precedent and common law,” he added.

Griffith only entered parliament in 2019. A trained accountant who rose to be chief financial officer of broadcaster Sky, he became Johnson’s business adviser based in Downing Street and offered up his Westminster townhouse as a campaign headquarters to the prime minister. He declined to comment for this article.

Truss and former chancellor Kwasi Kwarteng picked Griffith to push ahead with their City Big Bang 2.0 agenda that they hoped would be at the center of their plan for growth. Until then, Griffith was little known in financial services circles, while some who had previous dealings with him did not warm to him.

High Energy

That has changed in the past few weeks as Griffith has rushed around the City. Several executives have remarked on his high energy levels and keenness for ideas, particularly dramatic ones that would be quick to deliver.

“Having someone who has held a senior role at a complex company is helpful,” Flint said. “The hope is it should mean being able to have a good dialog about ideas and practicalities, leading to policies that are genuinely positive for the country.”

Yet there are concerns about some of the topics which have come up with Griffith, including the possibility of rolling back the UK’s Consumer Duty introduced by the Financial Conduct Authority to boost protections for individuals, and redrawing the regulatory perimeter so small businesses are required to fight disputes through the courts rather than via the regulator.

Griffith’s final plan had been kept under wraps, but it was almost ready to go before Truss resigned. On his list were measures including reducing liability risks for senior managers, cutting capital requirements on smaller banks and slashing regulations for professional investors, according to people briefed on the matter, who asked not to be identified discussing private matters.

Controversial Plans

Griffith has also been given the task of looking at two of the government’s most controversial ideas for financial services reforms – a possible power to allow ministers to overrule regulators and whether to make regulators give the UK’s international competitiveness equal weight with financial stability in their decisions.

Both could be added to the Financial Services and Market Bill, the UK’s post-Brexit framework for banks, insurers and asset managers that has taken years to prepare and is now going through Parliament. In hearings about the draft legislation, Griffith has quizzed industry figures and other experts about the merits of the changes.

There has been some support for the interventions, but also warnings. Martin Taylor, an ex-member of the Bank of England’s Financial Policy Committee, which scans for risks to the financial system, cautioned that a call-in power would be a “corruption of the system.”

Meanwhile, a key plank of the government’s reforms – loosening Solvency II insurance capital rules to free up billions of pounds for investment in infrastructure and climate transition has run into trouble due to the pension funds distress, which prompted some to think ministers would be more cautious about allowing insurers to plough money into hard to sell assets.

Whatever Griffith thinks, his views may be overruled. In a demonstration of the tangled politics of recent months, Sunak as chancellor and Glen as Griffith’s predecessor wanted a call-in power to introduce more democratic accountability to British regulators in the wake of leaving the European Union.

Since then the ideas have become associated with attacks on the Bank of England and other institutions as a result of Truss’s leadership campaign. That’s prompted some – including attendees at the Mansion House dinner – to speculate they might be watered down or dropped. Doing so would be the correct course of action, according to Sam Woods and Nikhil Rathi, bosses of the UK’s financial regulators who spoke at the event.

Their position is supported by the Labour Party. “The new Chancellor should listen to the warnings from the Bank of England, and ditch the dangerous proposed power to override decisions made by financial services regulators,” said Tulip Siddiq, the party’s shadow City minister.

The debate has become highly charged and getting back to the detail might be helpful, according to Barney Reynolds, global head of the financial services industry group at law firm Shearman & Sterling, who has contributed ideas to the Treasury on financial reforms.

Growth Hopes

While many are still shellshocked from the cavalier approach taken to financial stability by Liz Truss and her team, the City is still pushing for some reforms.

When chancellor, Sunak identified fintech as a key area for Britain’s post-Brexit growth. If he moves ahead with this and it is executed well, “the UK will be in a prime position to lead the next wave of financial transformation,” said Janine Hirt, chief executive officer of Innovate Finance, the lobby group for fintechs.

The financial world is looking to see what Sunak’s ascendancy means. While some hope Sunak will resurrect several of Liz Truss’s mooted personal tax cutting reforms once the current economic challenges have eased, others think priorities should be elsewhere — perhaps even tacking back to closer relations with the European Union.

Such questions are a long way from being answered. But as the clock neared midnight at the Mansion House event, financiers felt Sunak and his team would at least involve them in the discussion.

–With assistance from William Shaw.

Photograph: Rishi Sunak, UK prime minister, outside 10 Downing Street after delivering his first speech as prime minister in London, UK, on Tuesday, Oct. 25, 2022. “Right now our country is facing a profound economic crisis” Sunak said shortly after becoming the first person of color to lead the British government and its youngest premier in more than two centuries. Photo credit: Chris J. Ratcliffe/Bloomberg

Copyright 2022 Bloomberg.


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