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Rachel Reeves is pushing UK regulators to prove they are “taking seriously” their duty to protect the City’s competitiveness, as the Treasury raised concerns over the autumn launch of a new anti-fraud regime.
Reeves told the Financial Times she had pressed City watchdogs to show what they were doing in practice to meet their “secondary objective” to promote growth and competitiveness in addition to protecting consumers.
An early flashpoint is looming over a decision by the independent Payment Systems Regulator to force banks to reimburse fraud victims for claims worth up to £415,000 from October 7.
The move has caused alarm in the banking and fintech sector. Treasury insiders told the FT that officials had spoken to the regulator about the timing of the measures. “We’re asking: is this a sensible deadline?” said one.
The PSR did not immediately comment.
Reeves, speaking on the margins of a trip to New York last week, said: “We are pushing the regulators to demonstrate that they are taking seriously the competitiveness of our financial services sector.
“One of the commitments is to go through the rule book and tear up rules that are unnecessary or duplicative and we’re determined to do that,” she added.
The previous Conservative government introduced a “secondary” duty for regulators to promote growth in 2023 financial services legislation.
Both Reeves and Jeremy Hunt, the former Tory chancellor, have been in agreement that some decisions taken by City regulators appeared to neglect this obligation.
One target of both Labour and Tory concern has been the PSR’s compensation rules for authorised push payment (APP) fraud, where victims are tricked into sending money to fraudsters from their bank accounts.
Consumer groups have argued that greater protection for victims is urgently needed. Britons lost £460mn to APP fraud last year, according to trade body UK Finance.
In a bid to tackle the issue, the PSR last year ruled that banks and payment companies had to cover losses to fraud of up to £415,000, starting in October.
The City fears the measure will encourage fraudsters to pose as victims to illegitimately recoup compensation, and that the costs will disproportionally harm smaller digital players.
Former Tory City minister Bim Afolami in May told the FT there were “significant problems” with the rules. PSR head Chris Hemsley resigned from the watchdog the following week.
Although Treasury officials are talking to the PSR about whether the October 7 deadline is viable, banking figures fear the watchdog is committed to the date.
One said the sector was now focused on lowering the £415,000 reimbursement threshold and bringing forward a review of the impact of the rules to six months after their implementation, down from a year.
Labour also wants tech companies to share some of the burden for reimbursing victims of online fraud, the FT reported in June.
Other regulators, such as the Financial Conduct Authority and the competition and accounting watchdogs, have also come under pressure to do more to promote the UK as an attractive place to do business.
Treasury concerns about the FCA’s approach came to a head earlier this year — when Hunt was still chancellor — over the authority’s plans to “name and shame” companies being probed even before any finding of wrongdoing.
At a hearing of parliament’s Treasury committee in May, FCA chief executive Nikhil Rathi said the regulator would “take our time over this to make sure we get it right” in the wake of the reaction the proposal had caused.
A spokesperson for the FCA highlighted a document published last month setting out how the watchdog planned to deliver on its competitiveness objective. Rathi said the FCA was “firmly committed” to its new objective.
Reeves is expected to refer to the issue in her Mansion House speech to City grandees in the autumn, where she will focus on the need for financial services to be key drivers of the Labour government’s growth agenda.
“I believe our financial services sector is the jewel in the crown of the UK economy but we need to stay competitive in a very competitive landscape,” Reeves said.
“We do risk losing business whether it’s the listing of companies to New York or migration of US banks to other European capitals.”