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It has been a remarkable turnaround for a sector that brought the world economy down in 2008 and then, in the run-up to the 2016 Brexit referendum, campaigned hard against EU withdrawal. But the pandemic drove home to politicians just how vital financial institutions could be in delivering aid to individuals and business. Banks gave clients hit by COVID-19 some 5.8 million deferrals from loan repayments during the height of the pandemic while pumping some £75 billion into the economy via state-backed loans. The EU's attempt to court the City post Brexit, meanwhile, has highlighted the City's geopolitical value as a U.K. asset.
Consequently, politicians across parties are now singing the City's praises once again. In addition to the Conservatives' increasingly outspoken appreciation, even some Labour figures are praising the industry's job-creation potential.
But a growing to-do list of policy reforms, rolled out after Brexit and coming to a head this autumn, may bring fresh tensions as financiers await the concrete results of regulatory streamlining anticipated for years. The key question is whether the government has over-promised in a bid to project a more dynamic image after quitting the EU.
Some industry insiders worry Boris Johnson's administration may fall short. Team Johnson hasn't yet proved it excels at the kind of forensic policy work that's needed, said Charlotte Clark, director of regulation at the Association of British Insurers.
"You build confidence by making decisions and driving them through. It's not just by rhetoric," she said. "How does London become the preeminent green finance capital? You need to work with the City to make that happen."
While the government seems to be heading in the right direction, "the last few years have taught that things can change quite quickly," added Clark. "There's some really big decisions for the autumn."
In particular, she pointed to an imminent regulatory overhaul for insurers (termed Solvency II) and a consultation on a "wholesale markets review" that closed Friday. It seeks to dial back EU standards from U.K. law governing great swaths of capital markets, from commodity and stock trading to bonds, derivatives and data gathering.
Additionally, the U.K. is undertaking an overhaul of capital requirements for domestic banks and insurance firms. It also wants to tinker with a shield for deposits from risky market activity, online credit, digital assets and stock markets, among other areas.
"London will be very much defined by these decisions," she warned.
For years, relations between the City and the government were rocky. The level of mistrust and adversity was unheard of in other areas of the economy, said one banking lobbyist-turned-politician.
That "friction between government regulators and the industry" was due to the financial crisis and, later on, widespread opposition to Brexit among City types, said Anthony Browne, the Conservative MP for South Cambridgeshire who also sits on the Treasury Committee, which scrutinizes regulators and financiers.
But now, "there's a bit more in alignment of interest," he said, pointing to the finance sector’s status as a key source of exports, tax revenue and well-paid work.
"Financial services has been massively reformed in the last 10 years and ... they've learned their lessons," added Browne, who previously led the British Bankers Association, now known as UK Finance, the most powerful advocacy group for the finance industry in the country....
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