The UKs Second Big Bang

Britain repeals post-2008 banking reforms, including the cap on bonuses for bankers.

The biggest shake-up in financial services in more than three decades will see the UK roll back regulations imposed after the 2008 financial crisis. The so-called ‘Edinburgh Reforms’ represent the government’s desire to reenergize the banking sector and demonstrate that Brexit removed an EU regulatory straitjacket. Last month, the UK Chancellor of the Exchequer (finance minister) unveiled plans to “repeal and replace hundreds of pages of burdensome EU retained laws.”

Already, the cap on banker bonuses is gone—despite a potential backlash. Other significant targets include the post-2008 requirement that lenders ring-fence retail banking from riskier operations. Such changes could liberate smaller banks like Virgin Money and Santander and give major banks like NatWest and Lloyds more freedom in how they fund operations, according to research firm Insider Intelligence. Other rules under review include the Senior Managers Regime, covering how executives are hired, monitored and sanctioned; banking executives say the regulation prompted key talent to relocate.

The UK Treasury will also publish an updated Green Finance Strategy and consult on bringing ESG ratings providers into regulations. Furthermore—and despite recent turmoil in crypto markets—the reforms seem designed to make the UK a crypto hub. In the coming weeks the government will consult together with the Bank of England on a retail central bank digital currency. Such support can “accelerate financial innovations, such as the potential issuance of digital gilts,” says Chris Ford, head of government affairs EMEA at R3, a technology services provider. “Helping to set the UK apart amidst competition from Europe and elsewhere.”

Still, the reforms could encourage banks to take more risk, analysts warn, sparking another financial crisis. The UK government spent around $161 billion to shore up the financial system after 2008, Index Intelligence calculates. And a post-Brexit renaissance for UK financial firms looks unlikely, says Simon Deane-Johns, financial services solicitor at Keystone Law in London: “Both they and their UK clients lost the free movement of goods, services, labor and capital to and from the UK’s largest foreign market.”