The political parties are forging ahead with their election manifestos and plans for the future of the UK. Financial services sector featured high on the manifesto agendas, with the Labour party publishing their high-level policy statement on financial services Financing Growth: Labour's plans for financial services (Labour Plan) earlier this year.

Central to the Labour Plan is a commitment to continuity of the current package of FS reforms, including supporting the reforms in the Financial Services and Markets Act 2023 (FSMA 2023) and the HM Treasury's ongoing work on the Future Regulatory Framework, supporting technological innovation and fintech by advancing the work on a central bank digital currency, Open Banking and Open Finance, and pursuing developments which are already in train to strengthen the UK's position as a leader in the provision of sustainable finance, which is likely to include the current ongoing initiatives in relation to Greenwashing.

We discuss below some of the key priorities and themes that form part of the future plans for the FS sector, with a particular relevance to the consumer finance sector.  

So what are these key priorities and why do they matter?

Consumer Credit Act reform

On 16th June 2022, the government set out a commitment to reform the Consumer Credit Act 1974 (CCA) to modernise the regime and to bring it in line with the world in which the credit market operates today. As opposed to the HM Treasury's initial announcement in June that the reform would likely comprise of moving the majority of the CCA to the Financial Conduct Authority's (FCA) handbook, in its last consultation response in July 2023 HM Treasury indicated a more largescale overhaul of the regime.

Before the election was called, HM Treasury had been committed to publishing the next consultation paper on the CCA reform in the second-half of this year. In that consultation we could see the next phase of its proposals in the key areas such as pre and post contractual information for credit agreements and the sanctions provisions. However with the announcement of the general election these reforms now hang in the balance.

The Labour Plan mentions how the CCA is failing consumers and stifling innovation and that it requires updating to provide an outcomes-based approach which is fit for the digital age. Also as mentioned above, it is hinted in the Labour Plan that they would support the HM Treasury's ongoing work on the Future Regulatory Framework. Given CCA reform was being progressed as part of that programme (and Edinburgh Reforms) and their comment above on the CCA, we could still see HM Treasury going ahead with its planned consultation in September under a Labour government, if we get one.

Buy Now Pay Later

We have seen a very significant delay in the proposed regulation of Buy Now Pay Later (BNPL), which was first announced by the government in February 2021 due to concerns relating to potential consumer detriment in this market. HMT consulted on the proposed regulation in February 2023 and we are still awaiting a response on that. The dialogue on the proposed regulation so far indicated that the regulation will be rolled into the wider CCA reform, leaving us with some uncertainty on the next steps for BNPL.

The Labour Plan and manifesto although shift a renewed focus on BNPL and mention about having a plan in place for the regulation of BNPL, which can be implemented quickly to better protect consumers and provide certainty for BNPL providers if they come in power.

Consumer Duty and FCA rulebook

The Labour Plan includes proposals for streamlining the FCA Handbook to align with the Consumer Duty. They state that a Labour Government will direct the regulator to issue an open call to industry to identify rules which have been made redundant by the Consumer Duty. They state that this will provide an opportunity to streamline some of the duplicative and excessively procedural rules in the FCA Handbook and ease off unnecessary regulatory burden for financial firms.

SME lending

We have seen recent reports from parliamentary committees regarding concerns that confidence amongst small and medium enterprises (SMEs) in accessing finance has fallen and acceptance rates for business credit has lowered significantly. Therefore access to finance for SMEs still remains a priority for the Conservatives, and highlighted in their manifesto. The Labour Plan also identifies extending the time-horizon for the British Business Bank' business plan to enable longer-term investment and encourage initiatives to improve lending to SMEs. Further in response to concerns raised by the industry about the unwanted impact on SME lending arising from the upcoming Prudential Regulation Authority's implementation of Basel 3.1 rules, both political parties have recently promised that such implementation will not affect lending to SMEs.

Consumer protection and financial inclusion

This area featured in both manifestos. The Labour Plan in particular talks about creating a national financial inclusion strategy and partnering with industry to develop mechanisms to improve people's financial resilience. For example, through developing longer-term fixed rate mortgages, which would allow people more choice over the level of interest rate risk, and innovative savings arrangements. They also talk about supporting the expansion of the offering of green mortgages and to make them less expensive than other mortgages. Lastly, they state that a Labour government will ask the FCA and the Payment Systems Regulator to evaluate the potential to stand up a new regulatory sandbox to encourage development of innovative products to reach excluded and underserved consumers.

AI regulation and fintech

UK is clearly falling behind its international counterparts in establishing formal regulation in AI, which will ensure consumer protection in using this technology especially in the financial services sector where the technology is currently being used widely. Further with the prorogation of the Parliament a number of fintech related developments proposed in the Data Protection and Digital Information Bill (DPDI Bill), will make no further progress. The DPDI Bill was going to introduce a smart data scheme, which in turn would have paved the way for a more sustainable framework for the development of Open Banking and even Open Finance in the UK.

In their manifesto the Conservatives have promised securing the UK's position as a world leader in innovation and AI and build on the policies set out in the Edinburgh Reforms.

The Labour plan on the other hand is full of proposals to support and utilise technological innovation and fintech including, driving forward the next phases in Open Banking and Open Finance and supporting the work on a central bank digital currency. The Labour Plan specifically mentions the DPDI Bill and states that they will work with regulators and industry to develop the roadmap for Open Finance to prove its value and fulfil its potential to improve financial inclusion, support household saving and investment, and spur innovation by offering personalised solutions for customers.

The Plan also mentions that Labour is currently developing its AI strategy to lay out how they will set clear standards for AI safety, and adopt an agile approach to regulation. They will look at the safe development and use of AI models by introducing binding regulation on the handful of companies developing the most powerful AI models.