The financial services sector needs a fresh regulatory and tax approach to deal with the challenges and opportunities presented by a rapidly changing technological landscape, according to a new report by the CBI.
Funding our Future, the result of conversations with financial services firms across the UK, illustrates how the sector is a crucial enabling industry for the wider British economy. With over 1.1 million people working in the industry across every region of the UK, financial services contributed £72 billion in tax last year – 11% of total government tax receipts, or half the planned NHS budget – and accounted for 7% of demand for other sectors’ goods and services.
The sector’s products and services, from insurance to payments, are also a major driver of innovation and wider economic growth. But the sector is grappling with the challenges and opportunities of technological change, shifting tax and regulatory expectations, and new risks such as cybersecurity. While firms have welcomed the Government’s support for developments such as FinTech and a new regulatory sandbox, they need regulations that are fit-for-purpose in a new technological age. Among other proposals, the UK’s largest business group is suggesting:
- New mechanisms, such as a new Treasury Select Committee sub-committee for financial services, to scrutinise regulations and taxes that put customers first
- Strengthening engagement with the Financial Stability Board and more international regulatory coherence to support investment and innovation
- A cross-sector financial services technology “hub”, supported by the Treasury and Financial Conduct Authority, to share best practice, knowledge and latest technologies.
Flora Hamilton, CBI Head of Financial Services, said:
“The financial services sector is one of the cornerstones of the UK’s economy – when it is firing on all cylinders, everyone benefits. From high street banks to cutting edge digital payment firms, it helps businesses to grow across the UK, is a key catalyst for innovation in the economy, and drives productivity. And that’s not to mention the more than a million jobs it creates, and the taxes it pays – half of the NHS budget last year.
“But the challenges and opportunities presented by the rapid pace, and tremendous scale, of technological change come in equal measures for financial services firms. To fully embrace this change, firms are clear that they need the right regulatory and tax framework in which to operate, so they can innovate and grow.
“Putting customers at the heart of regulatory changes, ensuring the UK works hand in hand with the global financial services industry to stay a strong voice at the forefront of international regulatory and taxation policy, and driving innovation at every turn are all ways the sector can become fit for purpose for the fourth industrial revolution.
“If we get this right, the prize is huge. The UK’s world-leading financial services sector will become an even stronger cornerstone for the economy, leading technological innovation, keeping the country at the top of the global financial table and driving the British economy to new levels of productivity and prosperity.”