How to boost the UK’s financial services industry

In her Mansion House speech last year, Rachel Reeves, the UK chancellor, laid out her vision for the future of the UK’s financial services industry.

Reeves described the industry as the UK’s “crown jewel” and acknowledged its role in driving economic growth. But crisis-era regulation has held the industry back, she said. And, while the UK has historically been viewed as a global leader in financial services, Reeves acknowledged that other countries are competing for business.

The government intends to publish its financial services growth and competitiveness strategy in July. According to Reeves, the initiative will shape the future of the UK’s financial services industry and help firms to innovate and drive economic growth.

“As the government looks to the regulatory architecture and the ease of doing business, this is not just about maintaining the UK’s leading position in financial services, but really cementing our position in financial services for the next decade and beyond,” says Lisa Quest, head of UK and Ireland at Oliver Wyman.

The UK financial services industry is facing several challenges. First, small and medium-sized businesses are struggling to secure enough funding to grow their operations. The industry therefore must provide growth companies with more support, enabling them to thrive and drive economic growth.

“The strategy is not just about growth in financial services for the sake of it. It’s about how the financial services sector will enable outsized growth in other parts of the UK economy,” says Quest. “That missing middle for capital will be really important.”

Financial inclusion is another persistent challenge. Few UK adults (about 1 million) are ‘unbanked’, but 10% of the UK population is ‘underbanked’, meaning they have no access to suitable financial advice and cannot obtain a loan.

“Some people can pay for financial advice, but most people don’t or can’t, so part of the strategy should be about making sure everyone benefits from what the UK can offer,” says Martin Cook, head of financial services at Burges Salmon, a law firm.

Finance experts have suggested several reforms to help boost growth and competitiveness in the industry. Reducing firms’ administrative burden by cutting regulatory red tape is high on their wish list.

“The strain that bureaucracy and over-administration creates is one of the big reasons that the UK has become a bit of a laggard,” says Koo Aseeley, a partner at DSW Capital, a financial advisory firm.

Financial firms often perceive the UK regulatory framework as a significant barrier, which limits their appetite for risk and stymies innovation. One way to ease the regulatory burden is to move from rules-based regulation to principles-based regulation, as was done with the Financial Conduct Authority’s consumer duty rules introduced in 2023.

Cook says that doing so could achieve the same regulatory goals while reducing the overall administrative burden for firms. “Businesses want a permissive environment for innovation and a proportionate regulatory regime.”

But while regulation can be trimmed in some areas, the government must introduce clear rules and safeguards in others, such as crypto and AI, to provide more certainty for market participants.

“Switzerland was an early adopter of crypto regulation and now there’s a really big industry there because there’s a framework that people can work in,” Cook says. “It would be nice to see some movement on AI so that there’s no risk of moving the goal posts later down the line.”

Some market participants also want to see more equitable investment across the country.

“London gets a lot of attention because it’s a global financial centre, but there’s a huge amount of growth potential outside the capital,” says Aseeley. 

He believes the UK should take note of how other countries approach state-backed investment to drive economic growth.

“The Nordics and parts of the Middle East, such as the UAE, have done a fantastic job creating institutional funds or entities that invest similarly to private equity or large-scale investment houses, which supports the growth of their countries and regions,” he says.

Yet another challenge is ensuring that the UK remains open to global talent – no guarantee in a post-Brexit UK, where immigration rules are facing scrutiny across the political spectrum.

“Since Brexit, it has become truly difficult to attract talent, especially for the tech sector,” says Pierre-Antoine Dusoulier, founder and CEO of iBanFirst, a cross-border transactions platform. “These are profiles that generate wealth in the UK and help drive both the country and its SMEs towards the innovation, AI and tech opportunities that will shape the economy.”

The government is also seeking to attract international investment, so the strategy will seek to convince global investors that the UK is open for business, Cook adds. “The UK is still a good launching pad either from the rest of the world to the US or into Europe.”

Ultimately, market participants hope that the strategy provides enough clarity for financial services firms to plan more effectively. “This should give firms that are operating within the financial services space the ability to make multi-year investment decisions on the back of that to enable growth,” Quest explains.

If firms are confident in the operating environment, they can take a longer-term view on growth and help maintain the UK’s competitiveness as a leading global financial centre.

In her Mansion House speech last year, Rachel Reeves, the UK chancellor, laid out her vision for the future of the UK’s financial services industry.

Reeves described the industry as the UK’s “crown jewel” and acknowledged its role in driving economic growth. But crisis-era regulation has held the industry back, she said. And, while the UK has historically been viewed as a global leader in financial services, Reeves acknowledged that other countries are competing for business.

The government intends to publish its financial services growth and competitiveness strategy in July. According to Reeves, the initiative will shape the future of the UK’s financial services industry and help firms to innovate and drive economic growth.