City deregulation in the form of ‘Big Bang 2.0’ is the plan that new Chancellor of the Exchequer, Kwasi Kwarteng, has laid out to executives. The new proposals look to accelerate the post-Brexit shuffle away from retained European law, including Liz Truss’s widely publicised shake-up of the UK’s Solvency II-equivalent framework (UK Matching Adjustment) which governs the insurance sector. The proposed changes will see the stringency of the regulation eased, in turn freeing up billions in regulatory capital, to be injected back into the economy through illiquid asset investment.

Current Solvency II measures place a tight restriction on investment into the real asset market, so as to protect policyholders against unforeseen volatility in markets. The move to loosen regulation aligns with the government’s ambitious levelling-up programme, boosting the flow of capital into infrastructure projects across the country. Kwarteng highlighted the ‘immediate impact’ reformation could have on the City.

There is no hiding from the fact that the proposals have drawn criticism: Bank of England governor Andrew Bailey referred to a potential undermining of regulatory independence, while regulators themselves worry about a reduction in the City’s competitiveness globally, due to a potential loss of ‘safe haven’ status. A reformation would open the door to a plethora of investment opportunities – might this be at the cost of increased risk to policyholders?...