UK to press ahead with Edinburgh reforms despite banking crisis fears

The UK government has said it will press ahead with its plans to deregulate the country’s financial services sector, known as the Edinburgh reforms, despite widespread turmoil in the banking industry. 

“We are continuing to deliver the Edinburgh reforms, which recognise the foundations on which the UK’s success as a financial services hub is built: stability, high regulatory standards, agility, and openness,” a government spokesperson told City A.M.

These sentiments were echoed by Chancellor Jeremy Hunt. Speaking in the House of Lords Economics Affairs Committee today, Hunt indicated that the proposed changes might improve financial stability.

“Sticking with the status quo is not necessarily the best thing to do to maintain stability… we need to make sure we get the right balance between stability and growth potential.”

He said, however: “We will not do anything that would undermine financial stability… we won’t unlearn the lessons of the financial crisis.”

The Edinburgh reforms, announced by the government in December last year, are designed to “unlock investment and turbocharge growth” by repealing “burdensome pieces of retained EU law”. 

However, the recent tumult in the banking sector has raised questions about whether the government would continue with their plans.

Among the reforms are proposed changes to bank ring-fencing rules, which were put in place after the financial crisis to protect deposits from the riskier parts of a bank’s business. 

The government is proposing to raise the threshold at which ring-fencing rules apply from £25bn to £35bn and allow firms with very small exposure to investment banking to bypass the rules. 

Shadow City minister Tulip Siddiq told City A.M. “the banking sector isn’t one that should be fiddled around with at the moment in terms of ring fencing.”

“Ring fencing reforms were introduced for a good reason, to protect savers from a banking crisis. I don’t think the global investment banks should put our UK high street banks at risk,” Siddiq continued. 

Dru Danford, head of investment banking at Liberum, told City A.M. there should be stricter rules for many high street banks. 

“Deposit taking institutions may well need more stringent rules including making sure that funds on deposit are ring-fenced more not less,” Danford said.  

However, Danford also pointed out that there are a range of changes the government has proposed which are unrelated to problems in the banking system. 

He pointed to proposed reforms to equity capital markets and changes to MiFID II, which Danford said had been “disastrous for company access, market efficiency and investors alike.” MiFID II rules govern financial markets and were introduced by the EU in 2018.

“Markets need to be made more competitive and these initiatives are not in any way linked to the failures of banks such as SVB or Credit Suisse,” he said.