The Wobble in the UK Financial Services Sector Amidst Global Chaos
Financial services in the United Kingdom can continue to spur growth amidst an unpredictable global economic landscape
Navigating the new world order isn't a walk in the park, and it's left the financial sector distinctly shaken. The last couple of months have seen one economic and financial forecast after another, with red flags raised over financial stability. The Bank of England voiced concerns over the UK's financial system's stability, mirrored by the International Monetary Fund for global financial stability [Enrichment: (1)]. As an open economy with a substantial financial sector, we're prime candidates for a tussle. We're currently in the economic and geopolitical tumult seen since 2008, and it's shaking the very foundations of financial services [Enrichment: (2)].
Over six in ten financial services bigwigs are channeling more of their total revenues this financial year into fortifying their businesses against geopolitical events [Enrichment: (3)]. This isn't merely about saving our financial services - it's about saving our whole nation. These vital industries create almost 2.5 million jobs and contribute over £100 billion in taxes yearly [Enrichment: (4)], so their security matters greatly. However, we also need to build a future where they can thrive, supporting the nation's growth during strife and serenity alike.
What's Needed to Cement Financial Services' Foundation
Geopolitical uncertainty calls for clarity and confidence in the government's growth plans. While we eagerly await their Financial Services Growth and Competitiveness strategy, here are some areas we believe policymakers need to prioritize:
First, finding that sweet spot between regulation and encouraging growth is essential. The government's desire to lessen red tape and regulate for growth must strike a balance, particularly when financial stability risks are escalating. Streamlining regulation should maintain a safe and stable financial system and uphold the UK's robust regulatory regime as a competitive edge [Enrichment: (5)].
Second, nurturing the flourishing of UK fintechs will be paramount for job creation, growth, and investment. Regulation must be carefully considered to foster fintech growth and offer a level playing field for everyone [Enrichment: (6)]. By building a robust pipeline of SMEs and amplifying the availability of scale-up capital, we can ensure that innovative, valuable companies remain in our ranks [Enrichment: (7)].
Then, taking the reins as a thought leader in sustainable finance presents a prime opportunity. With the government's support, businesses can tackle the net zero transition more easily [Enrichment: (8)].
Fourth is embracing opportunities from trade corridors in Asia, the Middle East, and Africa as new and burgeoning markets come to life. Reinforcing existing alliances and exploring new ones – like the UK-Swiss Mutual Recognition Agreement – will also be vital [Enrichment: (9)].
Finally, tax becomes a crucial concern. Economic turbulence leads to sudden policy changes that can shake investor confidence and impede long-term growth [Enrichment: (10)]. The government must show how it plans to steady the UK's tax regime for financial services, keeping it attractive for keeping talent on board, drawing massive investment, and ensuring sustainable economic growth.
From Risk-Proofing to Pursuing Opportunities
Policymakers have a heavy plate, but financial services firms have roles to play, too. The increased investment in risk-proofing highlights how geopolitical turmoil is a looming threat to future growth for the sector [Enrichment: (3)]. Now is the time to shift our mindset from risk-proofing for resilience to risk-proofing for opportunity. Real-time geopolitical insights can empower firms to respond proactively to geopolitical developments, bolster decision-making, streamline processes, and elevate customer service during crises [Enrichment: (3)].
Meanwhile, the spotlight may be on the potential US-UK trade deal, but the risks are more daunting than the prospective hit to international trade [Enrichment: (11)]. UK financial stability risks are on the rise, and the financial services sector – the backbone of our entire country – is feeling the fallout. Policymakers, regulators, and the sector must collaborate to protect this crucial pillar and lay the groundwork for the UK's growth, navigating these challenging times together.
Karim Haji, KPMG's global and UK head of financial services, underscores the importance of the role the sector plays in the broader economy and the need for proactive steps to secure its future in uncertain waters.
- The financial sector in UK, facing a distinct shake due to the new world order, has expressed concerns over financial stability, with the Bank of England and International Monetary Fund voicing similar worries.
- Geopolitical events have led over six in ten financial services bigwigs to allocate more of their revenues this financial year towards business fortification.
- Ensuring the security of financial services is crucial, as they contribute almost 2.5 million jobs and over £100 billion in taxes yearly.
- Policymakers should prioritize finding a balance between regulation and growth, maintaining a safe and stable financial system while upholding the UK's regulatory regime as a competitive edge.
- Regulation must be tailored to foster fintech growth and provide a level playing field, allowing innovative companies to thrive and contribute to growth and investment.
- By streamlining regulation and ensuring the availability of scale-up capital, the UK can nurture a robust pipeline of SMEs and keep valuable fintech companies within its ranks.
- Adopting a leadership role in sustainable finance presents an opportunity for businesses to tackle the net zero transition more easily with government support.
- Embracing opportunities from trade corridors in Asia, the Middle East, and Africa, as well as reinforcing existing alliances and exploring new ones, will be vital for financial services growth.
- Economic turbulence can lead to sudden policy changes that can impact investor confidence and long-term growth, making it crucial for the government to provide clarity regarding its tax regime for financial services.
- The increased investment in risk-proofing highlights the importance of shifting from risk-proofing for resilience to risk-proofing for opportunity, using real-time geopolitical insights to streamline processes and improve customer service during crises.
