We could be looking at a new era of growth for the financial services market, says Paul Joyce, Partner at LAVA Advisory Partners.
The Chancellor’s recent Mansion House speech signalled a new era of deregulation, with the Financial Services Growth and Competitiveness Strategy relaxing rules like bank ring‑fencing, streamlining reporting burdens, and overhauling accountability frameworks.
The aim? To remove what’s been described as ‘a boot on the neck of business’ and encourage greater (informed!) risk-taking, in order to re-establish the UK as the global financial services hub by 2035.
With an enormous amount of international interest, particularly from US-based Private Equity, this is a timely message to a market that’s been growing increasingly concerned, and should signal a brand-new stage of growth for the UK financial services sector. But what does this actually mean in practice, and who will benefit?
A hard reset
Since the nerve-jangling days of the 2008 financial crisis, there’s been an understandable tightening of financial regulations and industry oversight. The increasingly stringent guidelines were designed with the well-intentioned aim of protecting the consumer (and the global economy) from the horrors of another crash, but there has been an ever-growing chorus of voices saying it’s gone too far.
Add in the joys of post-Brexit regulatory isolation, and it almost seems we’ve done everything we can to deter the international business community from investing in the UK. But it doesn’t stop there. The limitations on personal financial advice prompted the big banks to ditch their in-house advisors, which pushed a lot of casual retail investors out of the market altogether.
These new commitments are the UK’s best opportunity in years to review, reset and refresh our relationships on the international finance stage.
A bundle of benefits
One of the key upsides of this deregulation is the opportunity to reinvigorate overseas investment into the UK market. Firstly, overseas financial firms will find it easier and more compelling to consider the UK as a prime location for new offices, with the ability to offer a simpler regulatory environment compared to the EU, but with all the geographical advantages of being right next door.
Additionally, US PE funds are already clamouring to get access to UK investment opportunities, and this deregulation is only going to push that further. In the saturated US market, it’s become increasingly hard for firms to extract real value there, and with the ongoing uncertainty of the political situation, many are looking to diversify outside the US, as we’ve seen with Parthenon’s recent investment in Titan Wealth, marking its first foray into a UK platform.
It also presents opportunities in kind, with UK companies able to leverage their investors’ US ownership to explore new offerings or markets with a much lower barrier to entry than they would have faced previously.
On the consumer side, there are potential benefits for both the individual and the collective. These changes redress the balance of risk in offering personal financial advice and make it easier for the average person to leverage investments as well as savings accounts. With investments giving, on average, over 4x the return of a savings account across a twenty-year period, this is great news for the UK population’s waning retirement pot.
It also means that instead of being squirrelled away in a bank savings account, these funds are being invested back into UK businesses, creating the ultimate virtuous cycle of people investing in business, growing their wealth and thereby enabling further investment, which improves the UK business landscape and draws greater overseas investment, which creates wealth, and so on.
How to take advantage
Ahead of seeking any sale or investment, financial and professional services firms can maximise their opportunity in a number of ways. One is in having a clear vision of their goals for the transaction, whether that’s selling out entirely in order to retire, seeking strategic investment to fuel the next phase of growth, or planning a staged exit that ensures a legacy is left in good hands. Having a clear idea of these goals makes it easier to identify and appoint the right advisers, and clarifies the value drivers a business owner will need to demonstrate to secure the best possible deal.
It’s also important to distil and document the unique elements of team, offering or environment that have fuelled success to date, so they can be showcased to their best possible advantage ahead of negotiations, and protected under any new structure. In many financial services businesses, the people are the greatest asset. The relationships they’ve built with their client base are often the most valuable assets, so it’s vital to be able to articulate that, and to ensure any buyer or investor is dedicated to protecting them post-transaction.
What comes next
While this overhaul is a huge (and very timely) step in the right direction, there’s still more the government could do to maximise the opportunity to capture international investment and drive the economy forward. The tax burden is at an all-time high, so a thorough review would be welcomed by much of the business community.
It’s not just the obvious elements like corporation tax, but also about ensuring things like R&D tax credits remain available to up-and-coming financial services and fintech firms to drive innovation. Then there’s an important comms element too, in making it quick and easy to understand, apply for, and leverage these initiatives.
Creating a clear and simple process and articulating it well would make it much easier for overseas investors to see a clear path to setting up in the UK and understand the access it can give them to the rest of the region.
It’s very encouraging for the financial services sector to see some light at the end of the regulatory tunnel, and it’s going to be a very exciting time as we navigate this influx of overseas interest to build a brighter future for UK business.
Main image: paul-marlow-46Tg56viOUg-unsplash
