City minister says ‘world’s moved on’ from post-2008 financial services reforms

City minister Andrew Griffith has said “the world’s moved on” since the 2008 global financial crisis in an attempt to calm concerns about the easing of the UK’s bank ring-fencing regime.

Griffith told City A.M. that the regulation, which will be relaxed as a part of newly announced post-Brexit reforms, was acting as “an impediment” on some banks and that it will be “streamlined”.

The government unveiled its long awaited post-Brexit changes to the UK’s financial services rulebook on Friday, now dubbed the Edinburgh Reforms, with a set of 30 reforms set to be passed through parliament by the end of 2023.

This includes easing the Solvency II capital requirement on insurance firms, a consultation on easing regulations on short-selling and an overhaul of prospectus requirements.

Changes to the ring-fencing regime – which currently forces all banks with at least £25bn in deposits to separate their retail and investment banking activities – has been criticised by some as a risk to financial stability.

The City minister said the government was committed to “absolutely maintaining the core principle of financial stability”, but that some previous protections were no longer needed.

“The world’s moved on significantly,” Griffith said.

“Banks have much more capital today, lending practices are much tighter, there’s none of that excess mortgage lending that we saw prior to 2008 and the Bank of England has a resolution regime that means if banks get into difficulty there’s a way out of that.”

The so-called Big Bang 2.0 proposals – a phrase first coined by Rishi Sunak nearly two years ago – have long been touted by Leavers as one of the biggest potential benefits of Brexit.

Sunak has argued that the EU’s wide-ranging regulation is too restrictive in some areas and is not custom built for the UK’s large financial sector.

Sir John Vickers, an economist who led the Labour government’s review of the banking industry after the 2008 crash, said last week’s proposals were potentially an “extremely dangerous and wrong path”.

Vickers told The Guardian that the ring-fencing regime, first proposed by George Osborne in 2011 and implemented in 2019, is the “bedrock of how we regulate banks in the UK” and that Hunt must ensure his changes to the regulation aren’t too radical.

The government’s attempts to boost the City’s competitiveness come after mounting campaigns by several European countries to usurp the UK as the continent’s financial capital.

Bank of England governor Andrew Bailey previously voiced concerns about attempts by Brussels to shut London out of European markets and to promote EU capitals instead.

Griffith said the Edinburgh Reforms are “not about competing with any one particular market or block”.

“It’s not about that, but obviously in a changing world, in a competitive world, we want to be as agile and flexible as we can, really setting a sensible set of reform measures such as the Edinburgh Reforms is a good way of doing that,” he said.

“Our European friends are a core part of how we serve international markets.”