Hello and welcome back to the Pinsent Masons Podcast, where every second Tuesday we keep you up to date with everything that matters in the world of global business law. I'm Matthew Magee, I'm a journalist here at Pinsent Masons, and this week we look at two ways in which the UK government is overhauling financial services by laying out a vision for deregulation of the industry and by publishing a new law which will transform pensions. But will these policies achieve their aim of boosting domestic economic growth? We ask the experts.

But first, here is some business law news from around the world: Football Governance Act becomes law Consumer protection authorities call for global ‘manipulative design’ crackdown and England overhauls water industry regulation

The UK’s parliament has passed a Football Governance Act, which establishes an Independent Football Regulator (IFR) and a mandatory licensing regime for clubs in the top five tiers of the men’s game. The legislation was prompted by growing concerns over financial management, club collapses, and the threat of breakaway competitions like the European Super League. The new regulator will be tasked with overseeing the financial health, governance, and integrity of clubs. It is the first time that the sport will be subject to statutory regulation, with a dedicated body focused on long-term sustainability and interests of fans. Public law and legislation specialist David Thorneloe said: “It is vital for clubs to familiarise themselves with the requirements and potential implications of the legislation, which will operate in tandem with the existing requirements set by the leagues. Early engagement with the regulator and the leagues will help ensure the system is shaped to minimise duplication and work well for everyone.”

Twenty two national consumer protection enforcement agencies are calling for action to prevent manipulative gaming design techniques from harming children. The calls follow a global investigation by the consumer authorities into 439 mobile and online games, which revealed the prevalence of design techniques such as ‘sneaking', ‘nagging’, and ‘obstruction’ that may aim to manipulate players as young as three into making decisions or purchases they would not otherwise make. Isabel Humburg of Pinsent Masons, said: “The investigation highlights concerns with game design that may disproportionately affect vulnerable users, particularly children. As the latest report highlights, these practices encourage behaviour that ‘is beneficial to the developer, but often harmful to players’.”

Major changes to the planning and delivery of water and wastewater infrastructure, as well as to the way the industry is regulated in England and Wales, have been recommended by the Independent Water Commission. The Commission has put forward 88 recommendations including a complete overhaul of the current system of regulation. The UK government said it will fast track five of the recommendations, including establishing a “a new, single, powerful regulator” for water and wastewater in England. It said it will consult on further reforms and will introduce a new Water Reform Bill into the UK parliament. Water sector expert Gordon McCreath said: “There is a great deal to welcome in the Commission’s report such as a new regulator with team members across all relevant sectors, not just the water industry; a planning process that reflects that cross-sector approach; emphasis on the importance of central government direction to regulators and a recognition of the need for resourcing the new regulator with experts outside the public sector pay scale, across a balance of disciplines, including environment, engineering and finance.”

The financial services industry is incredibly important to the UK economy – since the ‘big bang’ deregulation of the 1980s the City of London financial district has been home to some of the most concentrated investment and trading activity in the world. So when the UK government proposes making sweeping changes to how the business is regulated the world of commerce listens. This is what happened last week when UK chancellor Rachel Reeves made the traditional big annual set piece policy speech at The Mansion House in London. London-based financial services regulation expert Liz Budd explains.

Liz Budd: The annual Mansion House speech is the speech given by the Chancellor to the city, if you like, on financial services. Really it's setting out the stall and the thinking of the government for the coming years. So the key things that were announced were the government's financial services growth and competition strategy and alongside that are the so-called Leeds reforms and these were actually launched in Leeds earlier in the day. The Leeds reforms are to turbo charge that strategy. This government strategy looks at financial services from a number of angles. One was to consider the regulatory environment and to make it more competitive both nationally and particularly internationally. The second was to encourage investment. It's recognised that people are under investing certainly for later life. The third major block is job creation. That looks to harness things like leadership in fintech and it's encouraging what they call financial services clusters outside London.

Matthew Magee: So that explains the rationale for the new approach. But what kinds of changes is the government making? Liz says that it's stripping away some of the regulation governing financial activity.

Liz: A major part of it is deregulation. The Chancellor used quite a graphic description of red tape being the boot on the neck of business. Not so long ago the UK being effectively gold plated was considered a good thing because we had the highest and therefore the best level of regulation and it was a good thing to be doing business in the UK. But following consultation it's been decided that essentially we are out of kilter with other jurisdictions that we are in competition with. So with this objective to deregulate, it's to make the UK a much more attractive jurisdiction to do business in and it's to encourage people to invest and to raise money. We've got changes around the senior management certification regime, which was originally introduced following the financial crisis back in 2008. That's become quite a regulatory burden just running the SMCR regime. Firms find it's quite a heavy process. So that is going to be lightened considerably. But then we've also got changes in the capital markets. We've had the launch of Pisces, a new market, and we've also got the changes to how you can raise capital, making it easier to raise capital. So there are all of these significant changes across the piece to encourage the financial services industry to go for growth.

Matthew: The UK government is deregulating financial services then, but this is not an uncontroversial plan. Regulations are part of what helps to avert financial crises such as the one that ravaged the world economy in 2008. So there are risks here, but Liz thinks they are balanced.

Liz: The belief with deregulation is that it increases the risk in the market because people are essentially given a rope to hang themselves with. There's no one with those checks and balances. But I think what we've seen over recent years is a move from granular regulation. It's a move away from a codified form of regulation to something that we would perhaps call more principles based. One of the key areas that we've seen that in is the introduction of the consumer duty. It's a major plank in how the FCA is going to approach regulation going forwards. So we have deregulation, getting rid of a lot of red tape, but then we've got these more amorphous principles and concepts coming in to provide that support and safety net. So there will be deregulation. That's the whole point of this, to get rid of red tape. But it's unnecessary red tape and I think that is something that's being consulted on at the moment and the industry is inputting into it. So it's a very thoughtful deregulation that's going on at the moment in my opinion.

Matthew: Liz agrees with Rachel Reeves that whatever risks there are, they're offset by the benefits that this deregulation will bring.

Liz: The overarching intention is to have growth in financial services. I mean, we are one of the major centres for financial services in the world. We have to run fast in order to stand still, let alone to make progress. It's a very competitive market and it is changing very quickly and we're looking to achieve that growth both domestically from encouraging people to do more local investment, but also internationally to get firms that are overseas to look more favourably on the UK as a good place to do business, a welcoming place to do business.

One other area in which the UK government is making significant change is in pensions. The Pension Schemes Bill has now been published, advancing changes that have been talked about, in some cases for many years. It will now go through the legislative process, bringing in staged reforms between 2026 and 2030. The changes are pretty big and are designed not only to improve outcomes for savers but also to direct resources into the UK economy to boost productivity and growth. Birmingham-based pensions expert Simon Laight outlined what the new law does. Just remember as he talks that there are two main kinds of pensions. The now slightly old-fashioned defined benefit schemes where you get a proportion of your final salary as a pension and the now more common defined contribution schemes where you save what you can and decide on retirement what to do with your pension pot.

Simon Laight: The Pensions Bill has now been introduced into Parliament. I suppose what's important is that a lot of the changes that it covers have been talked about for a number of years and now we can see draft legislation in black and white that's seeking to bring these changes in. The Pension Schemes Bill covers really the full horizon of pension provision in this country. There's going to be a relaxation around the statutory rules regarding having access to surplus that have built up in defined benefit schemes. Lots of employers around the country who have these old legacy schemes now find that they are in surplus. The money's trapped in a way. So if you can make it easier for the employers to use it, it ought to release a great swathe of money back to employers for those employers to invest in building their businesses further. It ought to mean that employers and companies who have over the years slavishly donated to these schemes against all the odds and starved those businesses from being able to invest in the businesses now can, there's a route for them to now start doing that.

Matthew: We talked earlier this year with Katie Ivins about the scale part of the new law for the more common defined contribution schemes the law says that the master trusts that run schemes must be big to continue to exist. They must manage £25 billion worth of assets by 2030 or stop trading.

Simon: There's now a scale requirement. If you want to be an insurance company or some kind of provider of defined contribution workplace pensions, you have to be at a certain size. There is reasoning behind that. Over recent years, more and more pension schemes have been investing not in UK equities or UK assets. The kind of returns they need are more available by investing in overseas assets. And so you have a country that is saving for its retirement provision, but not investing in this country and Rachel Reeves really wants to change that. The idea is that there are opportunities here for big investment, but it's only when you have very large pension schemes that engage sophisticated investment professionals and have their own sophisticated investment function that you're able to bring together enough money and expertise to invest in productive assets in this country. The simple notion is: well, if to get our pension money being invested in our country means we need to knock all the pots together into a few number of very big blocks, that's what we'll do.

Matthew: Simon says it's already clear who will be the winners and losers in that part of the industry.

Simon: It's generally going to be the insurance companies that are able to more easily demonstrate the required scale and other types of commercial master trusts run perhaps by asset managers and other service providers may well struggle over time to reach the scale requirement. The reason why insurance companies look like they've kind of won and they're going to benefit from this is that they already have quite large books of workplace pension products in existence, whether they are in master trusts or in what's known as group personal pension plans. What we weren't expecting in the Pension Schemes Bill is that the construct for how the scale requirement is put together is going to allow an insurance company to say, well, master trust product, I've got £5 billion here, but in my legacy workplace GPP products, I've got £30 million already stacked there. Now, with a bit of adjustment, I can make the investment strategy of all those, the new book and the legacy book, look the same and thereby I will be meeting the scale requirement.

Matthew: The new law will introduce a requirement that pension funds rate themselves for value for money based on data gathered from all funds. Simon says that this marks an important shift away from emphasising low-cost pension services to valuing high-quality services.

Simon: At the moment it's very hard for employers and also employees to work out whether the pension scheme that they are using is actually providing value for money. For various different reasons, it's actually quite hard to say, well, the charges in my pension are quite good, but how is my investment return? There's no easy way to compare. So this is a sort of two-component infrastructure whereby all workplace pension providers will be required to each year submit in the first part of the year a lot of data sets around their products and how they perform. Then in the second part of the year, each pension provider will have to compare itself, how it's doing, against the industry data that's been scraped and held in a central place. And then it will have to rate itself as to how it's doing. The idea is to try to move away from cheap is best to quality is best. At the moment, value for money means the cheapest charges are definitely the best. That's not the case in long-term investment. If you pay a bit more in charges, if you get it right, you're likely to access better investment managers who produce more return on the money that you save. That's what that whole programme is about, is seeking to move the dial away from cheapest is best to quality is best, even if that costs a bit more. The requirement for a scheme to rate itself out of three different categories might be open for abuse. There is definitely going to be some room for schemes who are struggling a bit to try to sum themselves up a category to avoid having to be shut down straight away. It's a big question mark around it whether this is going to work or whether it's just a huge lot of extra effort and which therefore means costs, is it actually going to deliver a better outcome for consumers or savers?

Matthew: The new law will also require pension funds to help savers as they approach the point of using their pensions, aware that not everybody is a sophisticated, knowledgeable investor. This is called guided retirement and, as Simon says, the natural end of pension equivalent of the successful auto-enrolment rules that make it the default that employers start pensions for workers. These changes mostly put increased burdens on pensions providers, but they also fundamentally reshape the UK's pensions market in ways, Simon says, whose consequences are unpredictable.

Simon: The overall impact for the industry is that there's going to be some winners and some losers, mainly because of the scale requirement. So if you are in the winner category, yes, you're going to be faced with increased costs. However, because of the scale requirement, you are going to end up with something like a quarter or an eighth of the nation's retirement wealth in your hands. That's a lot of billions. And so the cost of doing these extra obligations will be spread over quite a lot of people and therefore overall will be completely manageable. So overall, this is very significant change. A fewer number of larger providers that, because they're sophisticated, ought to produce better member outcomes and also more of the money they have under their control will be invested in the UK to build infrastructure and to build growth. It's a huge experiment. It's a very large experiment. All these measures basically to drive investment in this country, rather than the best outcomes for members being at the core of what pension schemes do, suddenly they've got to do that as well as putting a certain slice of their assets into UK investments, even though that won't necessarily obviously be the right thing to deliver the best financial outcome.

Thank you very much for listening to the Pinsent Masons Podcast this week and in the first half of this year. We're going to take a little break now for summer, let you rest and recuperate, rest your ears and we'll be back in September with more business law, news and analysis from all over the world from Pinsent Masons. But you don't have to wait till then. Remember, we publish every day on pinsentmasons.com and you can get a personalised digest of the things that you care about by signing up to the newsletter on pinsentmasons.com/newsletter. But thank you for listening today. Talk to you in September and goodbye. The Pinsent Masons Podcast was produced and presented by Matthew Magee for international professional services firm Pinsent Masons.