The financial services sector – which includes activities like banking, investment and insurance services – underpins the UK’s economy. Following Brexit, the Treasury launched a consultation, setting out the government’s proposals for adapting the rules that govern the sector.
According to the International Monetary Fund, financial services are defined as ‘the processes by which consumers or businesses acquire financial goods.’ A good example of this is when you use a payment provider like PayPal to make a purchase online – PayPal has provided a financial service to you as a consumer, and to the company you have purchased from.
But what this definition doesn’t include is what the financial services sector – and the regulation around it – is ultimately for. The Finance Innovation Lab has been leading a response alongside 36 leading charities and public interest groups to the consultation.
The Lab argues that this is a once in a generation opportunity to improve the rules that support this crucial sector – one that impacts tens of millions of people across the country – and make sure that it reflects its ultimate purpose – to maximise the industry’s contribution to our economic, environmental and social goals.
Read the statement here.
Many of us don’t think about the way financial services work in our daily lives, but they affect everything from how we buy essentials like food, to how we access public services. As the consultation closes, the Lab’s Head of Policy and Advocacy, Marloes Nicholls, explains why you should care about it.
Tackling climate change and nature loss is critical for our future. While regulators currently acknowledge the potential for climate change to create catastrophic financial risks, they fail to recognise the fact that the financial services sector is responsible for serious environmental harm.
That’s why we’re recommending the government aligns the financial system with the 1.5 degrees goal of the Paris Agreement.
The statistics are worrying – around 12 million people in the UK have few options to access credit, 1 million do not have bank accounts, and 8 million would struggle in the cashless society we are rapidly moving towards.
To ensure that everyone can use financial services, essential to everyday life, regulators must make sure that the financial system is inclusive.
3) Poor regulation can lead to millions of people losing their savings, homes and jobs – as happened in the global financial crisis of 2007/8
Lives and livelihoods were ruined for millions of people in the global financial crisis. The government’s focus on promoting the growth and competitiveness of the industry contributed to this devastating event; it is therefore concerning to see a renewed focus on ‘international competitiveness’ in current proposals.
With over 90% of people thinking this should not be a top priority for new regulation, it’s clear that regulators should be independent and able to act in the interest of the public.
When only the wealthy or well-connected can influence policy, millions – or even billions – of pounds of taxpayers’ money is at risk.
By tackling vested interests, the Review is a chance to tackle the role the finance industry plays in economic crime. Greater transparency over industry lobbying will bolster the UK’s international reputation for financial integrity, help to combat corruption, and increase public trust.
5) Democracy suffers without proper scrutiny of powerful industries like financial services
Given the size and importance of the industry, there should be a new financial services joint committee of parliamentarians who are able to scrutinise legislation and regulation. This will help to ensure that those responsible for shaping the rules that govern such an essential part of our economy are doing so in the best interests of the public.
With the UK having left the European Union, there is a golden opportunity for the government to give a wider range of groups – particularly those representing the interests of consumers, civil society and public interest – a say in what financial regulation looks like.