Paper – From Big Bang 2.0 to the Edinburgh Reforms

January 2023 • Topic: Rebooting UK capital markets • by By William Wright and Maximilian Bierbaum

It was not that long ago that the UK government was hailing Big Bang 2.0 as a radical programme of reforms to unleash the City of London and turbocharge the economy. After the short and chastening premiership of Liz Truss, the end result was the ‘Edinburgh Reforms’, a package of more than 30 reforms published with a lot less fanfare last month. This short paper drills down into the reforms, outlines the journey from Big Bang 2.0 to Edinburgh, and looks ahead to the long and complicated process of rebooting UK banking, finance, and capital markets to better support the UK economy and strengthen London’s post-Brexit competitiveness as an international financial centre.

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Depending on your perspective, the Edinburgh Reforms are either ‘a bold collection of reforms’ (Jeremy Hunt); ‘a missed opportunity’ that is ‘too slow, too narrow, and too timid’ (The Daily Telegraph); a risky ‘bonfire of burdens on the City’ (Robert Peston); or ‘an extremely dangerous and wrong path to follow’ (Sir John Vickers). We think the reality is more prosaic.

>>> In summary

• A sensible package: the Edinburgh Reforms represent a broadly sensible but sometimes disjointed collection of mainly evolutionary measures to rework the post-Brexit framework for banking and finance in the UK.

• A political pivot: the reforms mark a welcome shift in rhetoric away from Big Bang 2.0 and de-regulation without a significant shift in substance. While some people have criticised the package as ‘déjà vu all over again’, it is hard to argue that they would have been improved by the addition of some big political surprises.

• A technical exercise: the reforms reflect the huge amount of often complex, important, and technical work that has been done over the past few years with more than 30 reviews and consultations in every corner of the industry.

• The tip of the iceberg: the reform package manages to look at first glance like an extensive laundry list of proposals with a little bit of something for everyone, while simultaneously disguising some genuinely ambitious and wide-ranging reforms where a lot of the heavy-lifting has already been done or is being done elsewhere.

• Full speed ahead? Many in the industry may find the pace of change frustrating, but the reforms highlight that even when politics, regulation, and the industry align, reform is a lot harder and takes a lot longer than most people might like. The Future Regulatory Framework that is embedded in the reforms should enable this process to accelerate.

• A clearer strategy: the danger with a package of 31 measures is that it looks like a long ‘to do list’ that would benefit from a clearer strategic plan to prioritise them, connect them, implement them, and measure them.

• A bonfire of regulation? Disappointing though it may be to cheerleaders and critics alike, the reforms do not represent any sense of a bonfire of regulation, ripping up the rulebook, or putting the UK back on the path to another financial crisis.

• The Brexit effect: in many cases they do not represent a significant ‘Brexit dividend’. Roughly half of the measures have nothing to do with the EU or Brexit, and in many of the areas that do, the EU is also reviewing its own rules or has already done so.

• The end of the beginning: in many cases, they are not so much ‘reforms’ as ‘promises to think about potential reforms’. We counted 16 new reviews, consultations and taskforces, and many of the measures will include additional consultations in future. This process of reform has a very long way to run.

• More radical thinking: while the reform package answers the immediate exam question of how to reform the UK framework, we think an opportunity has been missed to outline some more radical structural solutions that would have a more substantial long-term impact.