Why do the Leeds Reforms make me nervous?

The enthusiasm sweeping the City of London and the wider financial services sector following the Chancellor of the Exchequer’s Mansion House speech on Tuesday evening, which came hard on the heels of that morning’s announcements at an event in Leeds of a wide ranging package of changes to financial services regulation, is palpable.

It makes me nervous. Why?

Quite simply, because I have been writing about financial services for long enough to have seen too many deregulatory initiatives end in tears.

There are many positive features among the proposals that have flooded out of the Treasury this week: simplification of listing rules to encourage IPOs, the creation of a captive insurance regime in London and the promise to regulate ESG (Environment, Social and Governance) ratings providers, although the latter is diluted by the dropping of the plans for a UK green taxonomy.

The two areas that make me nervous are the relaxation of some of the regulations put in place after the 2008 financial crisis, especially the clear separation of banks’ wholesale and retail operations and the instance that those in charge of financial institutions demonstrate their competence and probity through the Senior Managers Certification (SMCR) scheme.

‘Tell Sid’ to ‘Break the Chains’
It is the push to persuade retail investors to take more risks with their money by committing their savings to stocks and shares that really starts ringing alarm bells with me.

There are very good reasons why savers should keep a decent proportion of their money in investments that cannot lose their value, such as Cash ISAs or Premium Bonds: it will be there when they need it. The threat that the government should back a promotional campaign to encourage people to put savings – should they have any – into riskier share-based investments should be quashed. It never ends well. We had this nonsense in the 1980s and early 1990s with campaigns to encourage people to buy into privatisations – ‘Tell Sid’ – and then the push to persuade people to leave perfectly good occupational pension schemes and invest in a new breed of private pensions instead – ‘Break the Chains’.

The latter ended in disaster as it unleashed a wave of mis-selling that cost the sector over £12bn to correct. The reputational risks for Rachel Reeves, the government and the sector are enormous.

Unfortunately, the temptation to mis-sell risky investments will be irresistible to some advisers. I have already seen comments claiming that revising the current definition of Consumer Duty to allow a presumption in favour of stock market investments will allow advisers to persuade customers to move money out of interest-bearing accounts. Worrying.

Rachel Reeves needs to stop vacillating over the future of cash ISAs as this breed of less scrupulous adviser is already circling in the hope that the cap will be reduced. Cash ISAs are a perfectly decent, well-advised investment for people who need confidence that their savings will be intact just when they need them.

Stock markets go down – far and fast
Perhaps an advertising campaign should start with reminders of the catastrophic stock market crashes in 1987, 2000 and 2008, as well as the volatility in the wake of Trump’s unpredictable economic policy pronouncements. Yes, markets recover but some people will not be in a position to wait for them to return their money.

The Chancellor’s frantic search for growth must not put people’s savings at risk, nor must it turn a blind eye to the lessons that were learned in the wake the 2008 global financial crisis.