A summary of the Labour Party’s plan for Financial Services

The Labour Party published their plan for financial services, Financing Growth, on 31 January 2024. Although at a general level it covers different aspects of financial services, there is a significant portion that focuses on payments, highlighting the importance of the sector not just in financial services but in the overall economy. The plan calls out that the financial services sector contributed to 12% of the UK’s economic output in 2023. It drives economic growth and creates jobs and prosperity. It is perhaps not a surprise that Labour’s plan very much continues to take the payments sector on the same trajectory as it is currently. This welcomes stability for the sector, during a time of political upheaval, and ensures existing in-flight initiatives can continue to deliver the outcomes hoped for. This summary highlights Labour’s payment priorities and the implications for the sector.

The plan identifies the opportunity to export financial services into international markets. It will do this by promoting best practice in cross-sectoral regulatory coordination. Alongside this, the plan sets out an intention to set up a new Regulatory Innovation Office to improve accountability and promote innovation in regulation across sectors. A strong point in the plan is to use Consumer Duty as a template for outcomes-based regulation and streamlining the FCA handbook.

The payments world is becoming increasingly global and interoperable. Migration to the same standards as well as the global adoption of the same services, such as real time payments and Open Banking, mean customer expectations are increasingly similar and more demanding. Building closer ties with regional and global payment schemes has the distinct advantage of facilitating greater trade. Exporting UK knowledge, experience and capabilities to the rest of the world ensures our market leading position is retained while encouraging digital inclusion, in the way we have done with real time payments and Open Banking already.

Financial inclusion and protection are strong themes throughout the whole plan. It recognises the growing issue of fraud in the UK and calls for an integrated approach across government, law enforcement, regulators, financial services firms, and tech companies to address the entire ecosystem which enables fraud to occur. The plan specifically calls out technology firms and telcos and the need for data sharing with financial services firms. It also supports adding further friction into real time payments for suspicious payments, advocating delaying payments where required. There is also a clear plan to regulate the Buy Now Pay Later (BNPL) sector; something the current administration has not committed to doing, and it is likely to have significant impact on the firms operating in this space.

The call for greater collaboration across the ecosystem to tackle fraud is welcome as a greater impetus for all players to do more in this area is much needed. It will be interesting to see the details of how the plan will deliver greater collaboration; any efforts to do so can only benefit UK consumers.

The plan recognises the advances made in the fintech sector in the UK, but warns that other markets are catching up and overtaking. The opportunity for innovation is vast, with many initiatives already underway to drive global fintech leadership. The plan calls out Open Banking as a success story and supports the work of the Joint Regulatory Oversight Committee (JROC). It supports current efforts to deliver Open Finance and commits to supporting and growing further. The plan supports work on a Central Bank Digital Currency (CBDC) by the Bank of England and states this will continue. There is a brief mention of AI, and its potential but also recognises the need to ensure consumer protection. A planned AI strategy will lay out more details in due course. Finally, continuing the theme of inclusion, the plan states it will set up a regulatory sandbox to test financial products to reach underserved communities.

It is a case of ‘no change’ by the party with regards to innovation and fintech, supporting current work in Open Banking and CBDC. This gives both JROC and the Bank of England stability and reassurance to continue to work as per their roadmaps.

The plan by the Labour Party is to continue with work that seeks to innovate and improve, whilst plugging the gaps where perhaps there is insufficient consumer protection. A call for greater collaboration to tackle fraud and the stated objective to regulate the BNPL sector both seek to address consumer loss and make payments in the UK a better and safer experience. There is also recognition of what a great sector the UK has in payments and fintech; and how we can not only compete on the international stage but also become one of the UK’s best exports. Should we see a Labour party come into power there is unlikely to be great upheaval in the payments world, which gives stability and reassurance that work being done today can and should continue, ensuring there is no delay in delivering customer benefits.