London Daily

Focus on the big picture.
Sunday, Sep 27, 2026

UK banking rules face biggest shake-up in more than 30 years

UK banking rules face biggest shake-up in more than 30 years

The government is set to announce what it describes as one of the biggest overhauls of financial regulation for more than three decades.

It is expected to loosen rules on banks introduced after the financial crisis in 2008 when some banks faced collapse.

The changes will be presented as an example of post-Brexit freedom to tailor regulation specifically to the needs and strengths of the UK economy.

Critics will say it risks forgetting the lessons of the financial crisis.

The plans to ease regulations on financial services are being described as a second "Big Bang" - a reference to the deregulation of financial services by Margaret Thatcher's government in 1986.

Rules that forced banks to legally separate their retail lending arms from their riskier investment operations will be reviewed, as will rules governing the hiring, monitoring and sanctioning of senior finance executives.

The government has already announced it will scrap a cap on bankers' bonuses and allow insurance companies to invest in long-term assets like housing and windfarms to boost investment and help its levelling up agenda.

Chancellor Jeremy Hunt, who will announce a package of more than 30 regulatory reforms, said the changes would "unlock investment across our economy to deliver jobs and opportunity for the British people".

"Leaving the EU gives us a golden opportunity to reshape our regulatory regime and unleash the full potential of our formidable financial services sector," he added.

Mr Hunt is set to meet with bosses of the UK's largest financial services in Edinburgh on Friday to discuss the reforms.


Rules review


After the financial crisis of 2008, when the government had to spend billions supporting the UK banking system, a new regime was brought in to increase the personal accountability of senior risk-taking staff.

It allows for fines, bans and even custodial sentences, although there have been very few examples of enforcement.

But City insiders say a major disadvantage it imposes is the lengthy process of getting the movement of senior staff to the UK approved by the regulator - making London less attractive to foreign firms.

Complex rules on how commissions and services, such as research, are paid for will also be reviewed.

After the financial crisis, large banks were forced to separate or "ring fence" their domestic banking operations (mortgages, loans etc) from their investment banking operations (exposing their own cash to market volatility), that were deemed riskier.

The cost of having two separate shock-absorbing cushions of spare money (capital) was deemed by some as placing extra costs on the sector. This may be mentioned in the overhaul, but most of the big banks have spent billions on this ring fencing and are not calling for its reversal.

Reforms of ring fencing are aimed at mid-size banks such as Virgin Money and TSB.

There may also be new rules around bundling investments together into tradeable units - a process called securitisation. This process was instrumental in exacerbating the 2008 financial crisis as no one really knew where the bad debts were located so everyone stopped lending to everyone.

The government will also re-announce more freedom for the pensions and insurance industry to invest in longer term, illiquid (hard to sell quickly) assets - e.g. social housing, windfarms, nuclear - which the government will say helps their levelling up ambitions.

It is worth noting that although this will be billed as a Brexit freedom, the EU is undertaking similar reforms.

There will be some nod to developing the UK as a centre for crypto assets, but with some caveats given the recent bloodbath after the demise of the cryptocurrency exchange FTX. Most financial industry leaders say they are crypto curious but don't feel the need to be first on this. "Let the shipwrecks of others be your seamarks," said one.


'Jurassic Park of companies'


London's position as the pre-eminent European financial centre has been dented in recent years. London briefly lost its long-time crown of most valuable European stock market to Paris before gains in the pound pushed it narrowly back ahead, while Amsterdam took the title of busiest European share dealing centre.

Leading hedge fund manager Sir Paul Marshall of Marshall Wace recently described the London financial markets as a "Jurassic Park" of old-fashioned companies and investors, and it has struggled to attract the world's fastest growing companies to list on UK exchanges, often losing out to New York, Shanghai or even Amsterdam.

Labour politicians have criticised the scrapping of the bonus cap and said the UK should not engage in a regulatory race to the bottom, but the government will insist the reforms strike the right balance between stability and innovation.

Others will say that in loosening regulation we risk forgetting the lessons of the financial crisis when excessive risk taking ended in billions in bailouts and a decade of stagnating productivity.

Newsletter

Related Articles

0:00
0:00
Close
Analysis of Reform UK conference highlights deep political divisions over welfare and immigration
Bangladesh garment exports to the United Kingdom reach $915 million in early fiscal year
Royal Navy begins sea trials for new HMS Agamemnon hunter-killer submarine
New report suggests UK data centre expansion will create far fewer jobs than predicted
Major weekend closures announced for London Underground Piccadilly and Central lines
NHS leaders call for emergency winter funding to combat staffing shortages and rising illness
Far-right activist Daniel Thomas charged following alleged slashing of migrant dinghy
Home Secretary orders urgent review of border security following rise in small boat crossings
Prime Minister Andy Burnham to address Labour Party conference amid calls for long-term infrastructure plan
UK Treasury and Bank of England warn of rising inflation risks amid Middle East tensions
Royal Navy Diving Squadron Honoured for Global Bomb Disposal Efforts
UK State Pension Set to Approach £13,000 Per Year Under Triple-Lock
Rolls-Royce Wins Multi-Million-Pound Engine Contract with Philippine Airlines
TfL Questions Future of Heathrow Express Amid Proposed £33 Billion Expansion
Ed Miliband Warns Iran Against Hostile Operations on British Soil
S&P Global Manufacturing Index Signals Stabilization Amid Rising Fuel Costs
Prime Minister Andy Burnham Launches National Centre for Information Defence
UK Food and Drink Trade Deficit Surges to £21.1 Billion
OECD Upgrades United Kingdom Economic Growth Forecast to 1.1 Percent
Bank of England Faces Policy Challenges as Energy Prices Push Inflation Projections Higher
IMF Urges UK and Major Economies to Reduce Public Borrowing and Debt
UK Government Concedes Chagos Islands Sovereignty Deal is Dead Following Trump Opposition
Prosecutors Seek More Than 10 Years in Prison for Former DUP Leader Jeffrey Donaldson
UK Provided £66 Million in Emergency Security Funding for Mosques After Southport Disorder
Manston Inquiry Examines Role of Government Decisions in 2022 Overcrowding Crisis
Justice System Capacity Pressures Raise Concerns Over Release of Sex Offenders
UK Food and Drink Trade Deficit Widens to Record £21.1 Billion
UK Releases Climate Security Findings Previously Withheld Under Starmer
TalkTalk Races to Sell Consumer and Broadband Businesses as Administration Threat Looms
NHS Bodies Impose Minimum Two-Year Waits for ADHD and Autism Assessments
Andy Burnham Pledges £210 Million to Revive Boarded-Up High Streets
UK Borrowing Reaches £18.3 Billion in August Ahead of Autumn Budget
Vistry Cuts Profit Outlook as Losses Deepen and Private Home Sales Weaken
Reported Assaults on Great Britain’s Railways Rise Sharply
Far-Right Activist Daniel Thomas Arrested After Channel Dinghy Slashing
Ukrainians in Britain Face Greater Homelessness Risk as Host Payments Are Cut
Scottish Drug Deaths Rise as Synthetic Opioids Spread
UK Diesel Prices Approach Record High as Energy Costs Intensify
UK Food and Drink Trade Deficit Widens to Record £21 Billion
Britain’s Largest Planned AI Supercomputer Delayed by Power Grid Constraints
NHS Boards Impose Minimum Waits of Up to Two Years for ADHD and Autism Assessments
Police Arrest Far-Right Activist After Migrant Dinghy Slashed in English Channel
Synthetic Opioids Drive Renewed Rise in Scotland’s Drug Deaths
Reported Assaults on Britain’s Railways Rise 20% in a Year
Vistry Cuts Profit Forecast as Losses Weigh on UK Housebuilder
TikTok Drops Appeal and Accepts £12.7 Million UK Data Protection Fine
Russell Group Urges UK Government to Drop Proposed International Student Levy
Legal & General Plans to Cut 1,000 Jobs by Mid-2027
UK Health Bill Would Remove Independent Governors From NHS Foundation Trusts
BMA Raises Patient Safety Concerns Over Advanced Practitioners Filling Doctor Rotas
×