December 7, 2022
Estimated reading time: 4 minutes
UK government Big Bang 2.0
Change is in the air.
Since the UK officially left the EU in 2020, we kept many of the existing laws and regulations in place. Now though, economists and financial leaders in the UK government are expressing their desire to make some changes.
The Big Bang 2.0 describes the sweeping changes that the government will make in order to promote economic growth in the country.
Quick recap: what was the original UK Big Bang?
The original UK ‘Big Bang’ happened on October 27th, 1986. The phrase is used to describe the day that the stock market was deregulated in London, and the London Stock Exchange became its own private limited company.
At the time, the UK was falling behind global stock markets, especially the New York exchange. There was a huge feeling of antitrust within the country towards bankers and economists, primarily due to poor rules around commission and broker independence. Foreign membership in the stock market was also lacking, reducing the diversity of investment options.
In order to deregulate the market, the UK government ditched fixed commission charges and brought in electronic trading. This would go on to provide quicker responses to market volatility and give investors a better chance of getting the rate they wanted. Moreover, these regulation changes made the UK market more competitive, and therefore more attractive to foreign companies.
The Securities and Investment Board, which later became the Financial Services Authority, was also established to provide governance and enforce the rules.
Build up to Big Bang 2.0
As we know, Big Bang 2.0 hasn’t happened yet. But it has been mentioned by several Chancellor of the Exchequers (including Kwasi Kwarteng and now-Prime Minister Rishi Sunak) since the UK officially left the EU in 2020.
The post-Brexit landscape has left the UK’s financial regulation in limbo, and progress toward making changes has been slow. For the most part, the UK still follows financial regulations set by the European Commission.
Many in the government have called for sweeping de-regulation measures once again, to make the UK a more competitive market for business and increase investors.
With abnormally high inflation and the prospect of a recession, UK pension funds are also suffering. In early 2022, the government announced an economic growth target of 2.5%. Some believe that this de-regulation is needed in order to reach the target.
Possible de-regulation plans
With several changes in quick succession, there has been little progress or even planning around Big Bang 2.0. But if changes start coming in quickly, UK companies will be scrambling to keep up with regulatory compliance.
There is potential for changes to the following regulations:
- Solvency II
- The Markets in Financial Instruments Directive II (MiFID II)
- Financial Services and Markets Bill
At the moment, some financial organisations must hold a certain percentage of capital to withstand financial shocks. The idea is to protect customers in periods of economic volatility by increasing access to liquid assets (cash).
However, scrapping Solvency II would free up a portion of this cash for investment. This way, the money could gain interest or propel company growth, resulting in higher returns. This is why ditching Solvency II has been suggested to meet economic growth targets.
If this goes forward, the cash would be invested into illiquid assets (not necessarily UK assets) with higher risk, in order to create greater returns. However, there are questions about whether financial institutions could manage financial shocks effectively without relying on HM treasury for bailouts.
MiFID II is governed by the Investment Firms Prudential Regime (IFPR). It was designed to increase transparency for both UK institutional investors and casual investors by allowing them to make better-informed decisions. However, it is heavily criticised and poorly understood, even by experienced institutional investor industry professionals.
Tweaking MiFID II could result in more practical criteria that are easier to understand. This might provide less of a barrier to investment.
Financial Services and Markets
The UK has already amended and created its own equivalent to the EU Financial Services and Markets Authority, as of legislation from July 2022. This documentation revises the existing framework.
In particular, the revisions aim to make it easier for those operating in the wholesale market to trade across borders. It should help propel the UK economy without needing to create new technology and infrastructure.
Proposed Big Bang 2.0 timeline
Due to the quick succession of new Chancellors, unfortunately, there has been no official timeline for Big Bang 2.0. With more stability in government leadership, we expect to see more progress.
How to stay on top of Big Bang 2.0 changes
Keeping up with regulatory news in financial services is not easy. More so, when you’re an enterprise that operates between different jurisdictions and must comply with multiple iterations of the same rules.
Fortunately, CUBE RegPlatform can help firms to automate the entire regulatory change management process using a combination of AI and horizon scanning technology to turn compliance gaps into compliance excellence.