Kemi Badenoch has pledged to tear up post-financial crisis banking regulation, arguing that London is being held back by layers of outdated rules.
Speaking at the CityUK conference, the Conservative leader warned that “London is having its lunch eaten” by overregulation and promised a sweeping shake-up of the financial regime.
Her proposals, she claims, would pump £450bn into the UK economy by removing friction across the banking sector and freeing up capital for investment.
Central to the plan is the abolition of ring-fencing rules, which currently require major banks to separate their retail banking operations from their investment banking activities.
“This out-of-date regulation adds friction into banks’ activities, preventing them from buying and holding equities and squeezing investment into the economy,” Badenoch will say.
The legislation has long been a flashpoint across the City, with the nation’s top banking chiefs writing to Chancellor Rachel Reeves calling for the system to be scrapped.
Badenoch will also pledge to abolish the Financial Ombudsman Service, replacing the Docklands-based body with “an independent body that looks at the facts and applies the law.”
The ombudsman has faced criticism for operating as a “quasi-regulator,” and Badenoch will vow to “sweep away” a culture that assumes “every problem needs a new rule.”
“You may have heard I am a culture warrior. I am going to fix the culture,” she will tell delegates at the CityUK conference.
Her reforms will also target lenders’ capital requirements, where she argues “buffer after buffer after buffer” has been piled on over successive years.
A source familiar with the proposals said the Conservatives would change the legal framework that the Bank of England’s Financial Policy Committee operates under, requiring it to consider competitor jurisdictions when setting requirements.
The Bank of England’s Financial Policy Committee reduced the minimum capital requirement to 13 per cent from 14 per cent at the end of 2025, a figure Badenoch believes still leaves UK banks at a competitive disadvantage.
Miles Celic, chief executive of lobby group TheCityUK, said Badenoch’s pledges were “an important and valuable contribution to the debate about how our industry can best back Britain and the people of our country.”
Sir Andrew Large, former Deputy Governor of the Bank of England, described the “top-down” approach to financial services regulation as a “first” and “long overdue,” adding that “this has to be the way forward, rather than addressing the piecemeal problems individually.”
A spokesperson for UK Finance said that “ensuring reforms are delivered, from enabling responsible risk-taking to reform of bank capital requirements, will help the sector support investment and growth across the wider economy.”
Badenoch’s speech comes ahead of the Chancellor’s annual Mansion House address to City traders, scheduled for mid-July, where Reeves is expected to set out her own vision for the financial sector.
Reeves has made boosting financial services central to her growth agenda, though she has clashed with Andrew Bailey over capital requirements and other lending rules.
A Labour Party spokesperson hit back, saying: “The Conservatives crashed the economy and sent interest rates rocketing, yet they still haven’t apologised. Kemi Badenoch could have made any one of the changes she is now proposing when she was business secretary, but she didn’t.”