The Chancellor’s Mansion House speech: Key points for HR professionals

The Chancellor of the Exchequer Rachel Reeves delivered her first Mansion House speech on 14 November 2024. The speech focussed on the Labour Government’s direction of travel for the financial services sector and hinted at regulatory reform that we can expect to see over the coming years (for example, sustainable finance and innovation and technology will be key areas of focus).  We set out below the key issues to be aware of for HR professionals working within the financial services sector.

A key theme coming out of the speech was the idea of regulating for growth in future, rather than regulating for risk, which has in the Chancellor’s view been the approach since the Global Financial Crisis taking place between 2007 and 2009.   She said that the current regulatory system sought to eliminate risk-taking, but that this has gone too far and has had unintended consequences.

We can expect to see consultation and reform in the following key areas:

The Senior Managers and Certification Regime (SMCR)

The Chancellor said that areas of the SMCR have become overly costly and administratively burdensome, despite improving accountability.  She confirmed that HM Treasury, the FCA and PRA will shortly publish the long-awaited outcome of a review of the SMCR.  She confirmed that this will include a commitment to consult on removing the current certification regime from legislation. 

It remains to be seen what will appear in its place, but this proposal certainly raises some questions, for example, will staff who were in scope of the certification regime be subject to fit and proper assessments and the conduct rules if the regime is removed?  What will this mean for the apparently imminent proposals in relation to non-financial misconduct?  Will these apply to staff who were in scope of the certification regime and if so, how?

Changes to length of deferral elements of remuneration for dual-regulated firms

The Chancellor confirmed in her speech that the Government supports the proposals of the PRA in this regard.  The PRA and FCA swiftly followed with the publication of a consultation paper on 26 November 2024 (PRA consultation paper 16/24 | FCA consultation paper 24/23) regarding proposed rule changes for dual regulated firms (for example, banks and building societies). 

Some of the proposals include reducing the five-year minimum deferral period for some senior management functions (SMFs) to five years, aligning all material risk takers (MRTs) that are not SMFs to a deferral period of four years, simplifying the thresholds for identifying MRTs and making some changes to proportionality and thresholds at which firms must apply specific remuneration requirements, among others.  The FCA proposes to make some amendments to its rules for example to remove the need to maintain its own set of parallel remuneration rules to avoid duplication

Increasing the number of women within the financial services sector

The Chancellor mentioned that she supports an initiative around increasing the number of women in the financial services sector by backing the Invest in Women taskforce, which will be delivered alongside a Women in Finance Charter.

The speech did not mention wider diversity and inclusion initiatives, nor did it give any indication around whether the reporting proposals regarding diversity and inclusion proposed by the FCA and PRA (alongside the non-financial misconduct proposals) are to be taken forward or dropped (as is rumoured). 

The Birketts view

While we have focussed on some of the proposals that are important for HR professionals within regulated firms, this is a small part of the commentary in recent weeks around proposed regulatory change that we can expect to see over the coming years (for example, further regulation of the crypto assets sector).  What we can be sure of is that the constant regulatory change that we have become used to will only continue!