UK waits to hear the government’s plan to overhaul City rules following Brexit
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown: “chancellor Jeremy Hunt is expected to launch a significant reform of the UK’s financial sector, which will be announced in Edinburgh later today. London’s financial reputation has been severely held back since Brexit, right at a time when the ‘powers that be’ have tried to encourage investment and growth in a big way. Sadly, the allure simply isn’t there, with many of the UK’s brightest companies being snapped up by overseas investors, and London losing its top share-dealing status. Hunt is widely expected to scorch red tape and update or replace a number of EU regulations. It’s clear the government is going for growth, but the extent of today’s package will need to be vast, if it’s to have any meaningful impact for brand UK at a time when the country struggles with a slowing economy and cost-of-living crisis.
Some of the regulatory changes could include relaxing the rule that demands major banks to keep investment and retail banking separate. There’s an argument to say it’s crucial the government strikes the right balance between stoking the engines of growth in what has become a tepid environment, and not slashing standards too far in the name of that aim. The market’s likely to have a sharp reaction to today’s reform if any deeper-than-expected shake ups are in Hunt’s package. By that same token it’s widely recognised this is a rare opportunity to make a tangible difference in boosting the UK as a financial powerhouse, so if the tone is right the FTSE could respond well.
In another piece of financial drama, Santander has been fined by the UK’s financial watchdog, to the tune of £107.8m. The FCA found serious and persistent gaps in its anti-money laundering (AML) controls, affecting its Business Banking customers. Between 31 December 2012 and 18 October 2017, Santander failed to properly oversee and manage its AML systems, which significantly impacted the account oversight of more than 560,000 business customers. There was also evidence of ineffective verification systems, among other weaknesses. Breaches of this kind are a headache for any bank, not least because of the fine, but because of reputational damage. In all truth, this development is unlikely to change the story for Santander too much, but it will have worn down customers’, and the regulator’s patience, meaning any further breaches are unlikely to go down well.
Competition concerns have led the US to enter a legal battle with Xbox-maker Microsoft as it plans to block the tech giant’s acquisition of Activision Blizzard, which is responsible for Call of Duty. The regulators have concerns that should the deal go ahead, Activision’s games will no longer be available on non-Microsoft gaming consoles. This harsh response from regulators isn’t too much of a surprise, given President Biden’s pledge to take a more direct approach against monopolies. For Microsoft, the addition of Activision is needed to encourage growth for its languishing personal computing arm, which comprises the likes of Xbox, and pre-installed versions of Windows on personal computers. Until the outcomes of legal proceedings are known it’s very much business as usual for the group, but it’s something the market will be monitoring closely.
The oil price is set for sharp weekly losses as Brent crude futures stabilise around $77 a barrel, as renewed recession fears take hold. The concerns around a global slowdown are outshining optimism from the relaxation of zero-Covid policies and China. The international Brent benchmark is down around 10% this week, which also reflects a slew of comments from US top executives about the incoming recession.
Those same fears are likely to keep a lid on the FTSE which had shed close to 90 points in the week until Thursday. There are a few things that could change the trajectory, but the base-case remains that the FTSE will end the week on a downbeat note.”
