Hunt’s Edinburgh Reforms are being underappreciated

A wide range of carefully considered improvements is what the market needs to remain attractive

There has been a lot of talk about London losing its financial crown to Paris – but the fact is this is simply not true. The latest Global Financial Centres Index recognises that London leads Europe when it comes to business environment, human capital, infrastructure, financial sector development and reputation.

But change is much needed if we want to keep the UK’S leading position in Europe.

The financial services sector has undergone a huge transformation since I first started working in the City more than 25 years ago. We have changed the way we work, use data, and how companies access capital. Yet in that time, regulation has remained broadly the same.

There has been a consensus between government, regulators, and business for some time that major reforms are required to maintain competitiveness, unlock investment, and turbocharge growth – across all of the UK, not just in the City of London. This is especially important given the rate of innovation in finance as companies embrace emerging technologies such as AI, blockchain and quantum computing.

So the Government’s recently announced Edinburgh Reforms are welcome.

Questions have been raised about the effectiveness of the proposals, with some commentators suggesting that they will have minimal impact, but I think the potential of the Edinburgh Reforms is being radically underappreciated.

The sheer breadth of the announcement is significant in and of itself, incorporating some 30 reforms which stretch across the financial services sector and impact everyone – from individual consumers to large financial institutions such as the London Stock Exchange.

I suspect some may have discounted the Edinburgh Reforms because it can’t be wrapped up in one, simple policy change.

But financial services regulation is necessarily complex and there cannot, therefore, be one silver bullet.

A wide range of carefully considered long-term reforms is precisely what is required to ensure the UK remains one of the most open and attractive markets in the world.

The reforms will drive investment into UK growth companies. In particular, the new guidance for asset pooling of local government pension schemes and the consultation to ensure that these pension schemes consider a diversified range of asset classes, including venture and growth capital, are welcome.

As the Lord Mayor, Nick Lyons, said in his Lord Mayor’s Banquet speech, only 7pc of pension funds in the UK are currently allocated to real economy asset classes, compared with 19pc for other pension pots globally.

Industry research earlier this year found that there has been a more than 90pc decline in the proportion of UK shares directly held by UK pension funds – falling from almost 32.4pc in 1990 to less than 2.4pc by 2018. If the Edinburgh Reforms contributed to moving this percentage to even 10pc, it would unleash £40bn of new capital to be directed into companies, infrastructure and green investment.

By way of comparison, the whole of the UK’S private fintech sector raised almost £10bn in 2021 in what was a very good fundraising year.

And there is clearly more upside from there.

However, maintaining the competitiveness of the UK’S financial services sector cannot be solved through top-down regulation alone.

If we are to build on the momentum created by the Edinburgh Reforms, the financial services industry must engage with the agenda.

This is why industry leaders have come together to form the UK Capital Markets Industry Taskforce, which I chair. The goal of the taskforce is to maximise the impact of reforms, ensuring the UK has the best possible environment for great companies to start here, grow here, scale here, and stay here.

The taskforce brings together, for the first time, private companies, public companies, private investors, public investors, and the intermediaries in between. We want to do more than simply ask the Government to regulate for change. We want to think about what we can do differently to transform the economy for the better.

In the UK, we rarely discuss capital markets through the lens of their ultimate purpose: to direct capital into the real economy.

At the London Stock Exchange, we connect companies that need investment with capital at all stages of the corporate lifecycle, which in turn drives innovation, job creation, and economic growth.

This dynamic means that the investment industry has the power to transform the UK economy.

One of the taskforce’s objectives is to ensure that investors in the UK – which means anyone with a pension, an insurance policy or other invested assets – have access to assets that provide the returns they need and support the economy.

I hope that the changes outlined in the Edinburgh Reforms will reverse this decline and help savers, pensioners and policyholders find assets to invest in the UK for life events and their retirement.

There is a huge amount of alignment between all political parties and industry players.

The Edinburgh Reforms represent a large package that will together, and if implemented effectively, have the potential to fundamentally reshape the UK’S capital markets and, therefore, support the UK’S economy, without a doubt, for the better.