As the Chancellor prepares to deliver the Financial Services Growth and Competitiveness Strategy in her Mansion House speech on July 15, RSM UK says the financial services sector is the linchpin upon which growth for all other key sectors depends. While a reduction of the cash ISA allowance has been heavily trailed as a key change expected on July 15, RSM UK says removal of regulatory constraints to make business funding easier will generate real economic benefits.

The UK’s financial services industry is fundamental to the economy as it attracts, invests and distributes capital to enable businesses to invest and grow. In 2023 the UK accounted for 30% of G7 financial services exports and a third of Europe’s financial FDI projects. The largest and highest growth export market for UK financial services in 2024 was the US, purchasing £39.8bn – up 17% on 2022. However, the financial services sector has not grown in real terms since 2010. It has the second-lowest output growth in the G7, and other global centres are closing in on the UK’s advantage.

Hugh Fairclough, Partner and Head of Financial Services, RSM UK said: “Financial services support every UK industry, providing vital funding and investment to enable businesses across all sectors to grow. UK financial services needs to evolve in a way that lowers the costs to deliver services and enhances consumer protection, while being supported by government and regulators to be innovative.

“We hope this strategy will grasp the nettle on regulation and provide much-needed clarity on the regulatory regime for banks and building societies. As it stands, the uncertainty surrounding the pace and extent of regulatory change is significantly hindering the financial services sector's ability to fully support UK businesses. These businesses are the cornerstone of the UK economy, and without clear and consistent regulatory guidance, our capacity to serve them is constrained.

“It’s crucial that we achieve alignment across the various potential regulatory changes within the sector. Such alignment would offer the clarity and certainty that financial services firms need to unlock the capital necessary for businesses to meet the government's core growth objectives.

“A cut to cash ISA limits looks likely, aiming to encourage people to invest in asset classes more closely linked to UK stocks and shares. This may not lead to the expected change in customer behaviour that drives economic growth. The latest Advice Gap Report shows only 9% of people seek financial advice, and without this many may be unaware of their investment options. Some people may feel investments are too risky, and will therefore stick to high street savings accounts or even current accounts that typically don’t deliver good returns. Others may move their money without seeking essential financial advice, taking ill-advised risks they may later regret. Widespread access to appropriate financial advice will therefore be crucial in ensuring consumers aren’t losing out.

“We also hope to see a clear focus on fintech. As adoption of AI grows rapidly, getting the regulatory landscape right is critical to ensuring the sector embraces its potential, while mitigating risks and avoiding unnecessary regulation that hampers growth. Use of AI in financial services is currently a legal and regulatory minefield which needs urgent attention to protect consumers, while ensuring opportunities to embrace new technologies are maximised. This is a delicate balancing act, and the stakes could be high if we get this wrong.

“The UK financial services sector currently holds an enviable position on the world stage, and whether we retain this will largely depend on getting regulation right now, before other countries overtake us.

The government has demonstrated an appetite for deregulation, however the past crises that have followed previous attempts at this, including the 2008 banking crisis, must not be forgotten.”