With no great surprise, we find ourselves with a labour government holding the reigns to power today for the first time in 14 years. Will that usher in an ideological change in regulatory direction for insurance leaders to contend with or is the reality that the recent regulatory path of travel – seen as rather heavy handed by some – sits comfortably with the general positioning of the new political ‘powers that be’? With manifesto commitments against which they will be held accountable by the electorate, what can insurance firms expect from our regulators?
There are two key factors at play in the short to medium term – the opportunity for the new government to effect change, and the specific manifesto commitments it has said it will prioritise.
There has always been quite a bit of daylight between the Conservative and Labour approach to government and our intention here is not to debate the respective merits of each political party, rather to understand where and how we might see the difference in respective ideology make itself felt with a new government. With 14 years of a Conservative government behind us, much of our current regulatory approach is very much rooted in Conservatism, which generally advocates for less government intervention and more freedoms, whilst Labour might be said to adopt an approach that could perhaps be characterised as ‘protect the vulnerable’.
The Labour Manifesto
The Labour manifesto covers a wide variety of topics, many of which are only indirectly relevant to the regulation of financial services. One of the key sections that starts to give guidance on its approach to financial services is called “Kickstart economic growth”. This makes it clear that Labour sees the financial services sector as one of our great success stories and makes a commitment to support innovation and create a pro-innovation regulatory framework. These are both very positive statements – but with little detail on the delivery presently.
“Labour will stop the chaos and support business through a stable policy environment – strengthening our economic institutions, and giving investors the certainty they need to fuel growth.” (Labour manifesto, Kickstart economic growth)
The key manifesto promises:
- Artificial Intelligence
AI is probably best characterised as being both a risk and opportunity for business and consumers presently. In its manifesto, Labour has identified this as an area in need of a new regulatory approach and has said it will create a new Regulatory Innovation Office, bringing together existing functions across government. This office will help regulators update regulation, speed up approval timelines, and co-ordinate issues that span existing boundaries. - Breaking down the barriers to opportunity
It should be no surprise that Labour has identified ‘equality’ as a significant area for change in its manifesto (See: “Respect and equality for all”). It’s a cause that sits at the heart of the political agenda for the party. There are three key issues it has promised to address which may result in further regulatory evolution within the financial services sector. These are:- Women’s equality – Make Work Pay, as Labour has entitled this element of its policy, is intended to continue the transformation to the lives of working women, including by strengthening rights to equal pay and protections from maternity and menopause discrimination and sexual harassment. It has also made a commitment to further reduce the gender pay gap, building on the legacy of Barbara Castle’s Equal Pay Act from 1970, a moment it sees as one of landmark change in the history of our country and Labour politics.
- Race equality – a new Race Equality Act is proposed that will enshrine in law the full right to equal pay for Black, Asian, and other ethnic minority people, strengthen protections against dual discrimination and root out other racial inequalities.
- Disability rights – a commitment to championing the rights of disabled people and to the principle of working with them, so that their views and voices will be at the heart of all we do. There is a promise to introduce the full right to equal pay for disabled people and build on gender pay gap reporting, with the introduction of disability and ethnicity pay gap reporting for large employers.
The Opportunity To Effect Change
Effecting change through legislation can be a slow process, but when it comes to the regulation of financial services, there are existing mechanisms that will allow for this to take place at a faster pace. The two main ones are political appointees to the regulatory leadership teams and the way in which the Designated Activities Regime could be used.
Regulatory Perimeter And Leadership
The FCA is bound by its regulatory perimeter, something that was already under review by HM Treasury prior to the election being called. It is a matter that is reported on regularly by the FCA, with the last report issued in April 2024. A change to the perimeter may take more time, but much of what has been proposed in the manifesto is probably not going to require that. It is more about approach to the existing matters which are within the regulatory remit.
The FCA governing body is its senior leadership team and includes the Chief Executive, Nikhil Rathi, who is appointed by the Treasury for a period of 5 years, which may be extended once for a second term. His first term concludes in October 2025, giving the new Treasury team an opportunity to either endorse the current strategy, or seek new direction. It’s a date we will be watching. The terms of service of the other appointed members of the governing body are also determined by the Treasury, giving Labour other opportunities to set a different direction for the organisation if it wishes.
It is also worth remembering that the current 3-year FCA strategy period concludes in its 2024/5 planning cycle, so we will likely get an early indication of any change to approach when it sets its new strategy, something that will happen under the watch of Nihil Rathi.
The PRA is of course part of the Bank of England and works alongside its Prudential Regulation Committee (PRC), which includes at least six (external) members appointed by the Chancellor. We assume that the new Chancellor will be Rachel Reeves, who did herself work for the Bank of England for 6 years between 2000-2006. That may have been some time ago, but we would expect she will have a good sense of how the Bank operates and the actions she may wish to take to influence any change in direction Labour wish to oversee. With two of the PRC member’s 3-year terms concluding in 2024 and one in 2025, there is plenty of scope for her to exert a different influence on the PRA, particularly as only one of those PRA members is eligible to have their term renewed.
The FSMA 2023 And The Designated Activities Regime
The Designated Activities Regime (DAR) was introduced as part of the Financial Services & Markets Act 2023 and sits alongside the Financial Services and Markets Act 2000 (Regulated Activities) Order (the RAO). The effect of the DAR framework is to enable the Treasury to ‘designate’ activities, and to confer rule-making, supervisory and enforcement powers to the FCA.
“Initially, the Treasury will designate activities to enable us to make rules to replace relevant provisions in retained EU law that are being repealed under the Act. But use of the DAR is not restricted to these activities, and the Treasury will be able to designate further activities in future.” (FCA Perimeter report: https://www.fca.org.uk/publications/annual-reports/perimeter-report).
If Labour feels that its manifesto commitments require any change in designated activities subject to regulation to enable them to be delivered, it has a clear mechanism to do so quickly.
ICSR Support And Guidance
The manifesto commitments made by Labour are not unexpected and align to regulatory work that is already underway. The recognition of the value our country as a whole derives from the financial services sector is very positive and the commitment to a pro-innovation framework will be welcome as a principle.
The FCA has already committed to review its work on vulnerable customers by the end of 2024, now under the lens of Consumer Duty, and the Policy Statement on Diversity & Inclusivity, promised in H2 2024, is another opportunity to see whether there is any rapid change in regulatory approach. What is proposed in relation to AI seems very sensible, although little detail on the application of that commitment is available.
In our view, this is likely to be less of an ideological change in regulatory direction, with our industry likely to see the regulators continue on their existing pathway to champion consumer rights in ways that have broadly been accepted as sensible by firms. Perhaps what we will see is a continued hardening in enforcement action against those who do not take the rules seriously. Possible personnel changes at a senior regulatory level and the new FCA strategy will be our early clues of any more significant changes afoot.
If you have any questions about the way your firm responds to its regulatory obligations, please do speak with the author or your usual ICSR contact.
