The Edinburgh Reforms  | 236

Summary

Down to Business English – Episode 236

"The Edinburgh Reforms"

Hosts: Skip Montreux & Des Morgan
Release Date: December 24, 2022

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Episode Overview

In this episode, Skip and Des dive into the "Edinburgh Reforms"—an ambitious set of changes announced by the UK government aimed at overhauling banking and investment regulations, the biggest such reforms in the UK in 30 years. The episode unpacks why these reforms are being introduced, the changes they propose, and their potential impact on the UK’s financial industry, with broader implications for global finance—all while providing engaging language and vocabulary explanations for learners of business English.

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Key Discussion Points & Insights

1. Background & Motivation for the Edinburgh Reforms (04:01 – 06:06)

• Brexit and National Pride:
  • The reforms were motivated by two main factors: post-Brexit realities and a blow to British national pride.
  • Des (04:07): "Two things. Post Brexit Britain and a knock to Britain's national pride."
• Loss of Market Status:
  • Paris Stock Exchange overtaking London's as the largest in Europe was a significant trigger.
  • Des (04:15): “In November, Bloomberg reported that the Paris Stock Exchange... had overtaken London’s stock exchange as the biggest market in Europe by capitalization.”
  • This was partly due to the weak pound and the strength of luxury brands listed in Paris, benefiting from expected post-COVID consumer demand from China (05:10).
• Brexit’s Impact on Financial Services:
  • UK-based financial firms no longer fall under EU policies and must apply for EU licenses, prompting an exodus of firms and jobs.
  • Des (05:39): “UK financial firms now have to apply for a license to do business in the EU. And that has in turn led to many finance service companies leaving the UK.”
  • Stat: “400 financial service companies and over 7,500 financial jobs have left the UK for the EU since Brexit came into effect.” (05:54)

2. Details of the Edinburgh Reforms (06:07 – 08:51)

• Post-2008 Financial Crisis Regulations:
  • Regulations had previously separated retail and investment banking, prohibited use of customer deposits for trading, and banned securitization (bundling loans like mortgages and selling them as securities).
  • Des (06:14): “Big international banks were not allowed to use customer deposits to invest in any other forms of trading.”
• Reversal of Safeguards:
  • The Edinburgh reforms will allow banks to once again engage in activities linked to the 2008 crash, such as using customer deposits for investment and securitization.
  • Des (07:13): "And the Edinburgh reforms will make both of those practices possible again."
  • Skip (07:19): "You're kidding."
  • Des (07:20): "Sadly, I'm not kidding."
• Expanded Powers for Insurance Firms:
  • Insurers will be allowed to invest in illiquid assets like social housing or wind farms.
  • Risk: These investments are hard to sell quickly if needed.
  • Skip (07:51): "[I]t’s very difficult to do that.”
• Cryptocurrency:
  • The reforms consider positioning the UK as a cryptocurrency exchange hub, even after recent scandals.
  • Des (08:25): "That's right, even after that scandal [FTX]."
• Bankers’ Bonuses:
  • Removal of the upper ceiling on bankers’ bonuses, a move deemed potentially unpopular with the public.
  • Skip (08:37): "I can easily see how people would be annoyed with bankers getting larger bonuses."

3. Broader Implications and Data (08:51 – 10:44)

• Executive Hiring and Compensation:
  • The reforms aim to ease hiring of executives and reduce compensation regulations.
  • Des (08:51): "The final recommendation the Edinburgh reforms tackle is the hiring and compensation package of executives."
• Criticism and Support:
  • Mixed opinions: Could attract business if managed well, but risks echoing pre-2008 mistakes.
  • Des (09:26): "It's hard to say at this point. The critics have a good point, but then so do the supporters..."
• The Scale of the UK Financial Sector:
  • In 2021, post-Brexit, UK financial services still contributed £173.6 billion (8.3% of the economy).
  • Des (09:45): "...the financial services sector still contributed 173.6 billion pounds to the UK economy, or 8.3% of total economic output."

4. Naming and Recent Developments (10:14 – 10:44)

• Why 'Edinburgh' Reforms?
  • Named after Edinburgh, Scotland, where the UK Chancellor announced them.
  • Des (10:19): “Jeremy Hunt, the UK’s Chancellor of the Exchequer, made the announcement in Edinburgh, Scotland.”
• Immediate Impact:
  • Minor strengthening of the pound; London Stock Exchange regains lead as Europe’s largest market.

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Notable Quotes & Memorable Moments

• On British Pride:
  • Skip (04:27): "No, I know how you Brits hate to lose, especially to the French."
  • Des (04:33): "As I said, Britain’s pride plays a role in this story."
• On the Risks of Reform:
  • Des (07:20): "Critics of the reforms see a future scenario where what happened in 2008 could very well happen all over again."
  • Skip (10:44): "Well, there you go. You can once again hold your head up high and be a proud Brit."
• On Executive Pay:
  • Skip (08:37): "With rising expenses and inflation, a lot of people have a lot less money than before."
• On Financial Sector Importance:
  • Des (09:45): “Even after Brexit, the financial services sector still contributed 173.6 billion pounds to the UK economy, or 8.3% of total economic output.”

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Important Timestamps

• Motivation & Brexit Context: 04:01–06:06
• 2008 Crisis Recap & Reversal: 06:07–07:30
• Insurance, Crypto, Bonuses: 07:33–08:51
• Sector Size & Reform Debate: 09:26–10:09
• Naming & Market Status Update: 10:14–10:44

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Business English Vocabulary Segment (12:37–19:22)

Des and Skip focus on business idioms and specialized vocabulary used in the episode:

• On a different tack (12:37): Changing the subject ("This expression...from the old sailing ships… If you want to change the direction of the ship, you have to use a different tack."—Des, 12:50)
• Nuts and bolts (13:13): The basic information or details of something.
• Pent up (15:33): Confined or held back demand or emotion (e.g., "pent up demand for luxury goods in China").
• Illiquid (16:41): Assets hard to quickly convert to cash.
• Ceiling (17:52): A maximum limit, e.g. “removal of the ceiling on bankers bonuses.”

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Tone and Style

The conversation maintains a friendly, slightly irreverent tone—balancing serious discussion of reform risks with humour and camaraderie (“You can once again hold your head up high and be a proud Brit.”—Skip, 10:44). The hosts, both seasoned educators, intersperse timely business English explanations, making the content accessible for both business professionals and language learners.

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Closing Thoughts (20:04–21:57)

• Cautious Optimism:
  • Skip: "It sounds like new and exciting territory ahead for the UK financial industry."
  • Des: "I just hope that these reforms don't lead us down a path to yet another global financial meltdown. History does have a habit of repeating itself."
• Season Wrap-up:
  • Personal farewells and mention of plans for upcoming episodes.
  • Des (21:23): "You have yourself a happy Christmas. And is this the ceiling for D2B episodes this year?"
  • Skip (21:31): "No. I think Samantha and I will be able to squeak one, maybe two more shows out before December 31st."

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Summary

This episode provides a balanced review of the Edinburgh reforms, outlining both the business rationale and the substantial risks of deregulation reminiscent of the 2008 financial crisis. The hosts contextualize the reforms within the UK's changing role post-Brexit and the competitive pressures from European markets, while also providing meaningful business English takeaways relevant to a global audience.

Transcript

[Narrator]

From Tokyo, Japan and Sterling in the United Kingdom, this is down to Business English with your hosts, Skip Montreux and Des Morgan.

[Des Morgan]

Hi Skip. It's great to be sitting down with you again.

[Skip Montreux]

Good to be talking with you too, Des.

[Des Morgan]

Christmas and New Year is upon us. Do you have any plans?

[Skip Montreux]

Not so many plans. I think I'm just gonna stay around the house, work on the down to Business English website, and maybe get a head start on filing my taxes for next year.

[Des Morgan]

Oh, well, that sounds like a lot of fun.

[Skip Montreux]

How about you?

[Des Morgan]

I'm heading back to Scotland for a holiday.

[Skip Montreux]

Oh, that'll be nice.

[Des Morgan]

Yeah, I'm looking forward to seeing my family. Although I read that it's suddenly become very cold in Northern Europe with temperatures falling to -9 in parts of S.C. scotland.

[Skip Montreux]

Well, -9 to a Canadian like me, that doesn't sound too cold.

[Des Morgan]

I guess not.

[Skip Montreux]

I think the lowest temperature ever recorded in Canada was a finger numbing. Minus 61.2 degrees Celsius. That was in a small village in Northern Canada by the name of Snag in the Yukon Territory.

[Des Morgan]

Oh man, that is cold.

[Skip Montreux]

That was way back in 1947.

[Des Morgan]

I cannot even imagine what that must be like.

[Skip Montreux]

Well, where I hail from in Saskatchewan, I often experienced minus 30 degrees in the dead of winter. Sometimes maybe minus 40 degrees.

[Des Morgan]

Well, I can see how you developed a taste for whiskey. Something to warm you up on a cold winter's night.

[Skip Montreux]

That could be on a different tack. I hear that China is relaxing some of the COVID restrictions on residents. Is that true?

[Des Morgan]

Yes, it is. The weekly Covid tests have been removed. And when I return to China in the new year, I will only have to be tested once before the flight.

[Skip Montreux]

Well, that is certainly different from when you first came to China.

[Des Morgan]

Yeah, I had to test negative on two tests in October.

[Skip Montreux]

It is an improvement.

[Des Morgan]

And the required quarantine when you arrive in the country has been reduced from 10 days to just eight days. So that's a bit better as well, I guess.

[Skip Montreux]

Yes, it does sound a bit easier. Stay safe on your travels, Daz.

[Des Morgan]

I will. And I'm hoping to get a King Charles 50p coin while I'm in the UK.

[Skip Montreux]

Oh, are they out already?

[Des Morgan]

They are apparently the first coin with King Charles III's head on. It was the 50p bit that went into circulation on December 8th.

[Skip Montreux]

All of UK's money will need to be replaced.

[Des Morgan]

I guess over time. Yes. I think banks will slowly pull the older dominations of coins and bills out of circulation and then slowly introduce new designs.

[Skip Montreux]

I Suppose so. Now, Des, I assume that with you getting on an airplane very soon and heading back to Scotland, today is going to be your final episode of D2B for 2022, is that right?

[Des Morgan]

I'm afraid it will be, yes.

[Skip Montreux]

Well then, what topic do you have in store for us today?

[Des Morgan]

Well, speaking of money banks, there was an announcement from the UK government earlier this month which is set to be the biggest reform of banks and investment firms in the UK in the last 30 years.

[Skip Montreux]

Banking and investment reform. Sounds like a great topic.

[Des Morgan]

It is. So let's do it. Let's get D2B down to business. With the Edinburgh reforms, what are they and what changes will they bring to the UK's financial industry?

[Skip Montreux]

What prompted the UK government to introduce this reform policy?

[Des Morgan]

Two things. Post Brexit Britain and a knock to Britain's national pride.

[Skip Montreux]

Elaborate on that a bit. What do you mean?

[Des Morgan]

In November, Bloomberg reported that the Paris Stock Exchange, known as the pax, had overtaken London's stock exchange as the biggest market in Europe by capitalization.

[Skip Montreux]

No, I know how you Brits hate to lose, especially to the French.

[Des Morgan]

As I said, Britain's pride plays a role in this story.

[Skip Montreux]

So how did this happen?

[Des Morgan]

Well, some of the falling valuation of the lse, the London Stock Exchange is connected to the weak pound, but another factor is the large number of luxury brands that are listed on the Paris Exchange.

[Skip Montreux]

Luxury brands listed on the Paris Exchange. And how exactly did that play a role?

[Des Morgan]

All of these luxury brands like LVHM and l' Oreal are expecting pent up demand from consumers in China to hit the market again as soon as Covid restrictions are lifted.

[Skip Montreux]

Right.

[Des Morgan]

Well, as you can imagine, this has led to a considerable uptick in their share prices over the last few months.

[Skip Montreux]

All part of our interconnected world. You also mentioned Brexit.

[Des Morgan]

That's correct. Now that Britain is no longer in the eu, financial firms based in the UK no longer fall under EU policies.

[Skip Montreux]

And what impact does that have?

[Des Morgan]

One impact is that UK financial firms now have to apply for a license to do business in the eu. And that has in turn led to many finance service companies leaving the UK.

[Skip Montreux]

Ah, a brain drain.

[Des Morgan]

Something like that. 400 financial service companies and over 7,500 financial jobs have left the UK for the EU since Brexit came into effect.

[Skip Montreux]

Wow, that's incredible.

[Des Morgan]

It is. Now let me get into the nuts and bolts of the banking reforms.

[Skip Montreux]

By all means.

[Des Morgan]

Following the financial Crisis back in 2008, measures were put into place to limit the amount of financial risk institutions could take on. Specifically, regulations were put into place to separate retail banking and investment banking.

[Skip Montreux]

Could you give me an example of this separation?

[Des Morgan]

Sure. Big international banks were not allowed to use customer deposits to invest in any other forms of trading.

[Skip Montreux]

So a commercial couldn't, for example, use their customer deposits for any other forms of investment.

[Des Morgan]

That's right. Furthermore, banks were no longer allowed to parcel up investments together into tradable units in a process called securitization.

[Skip Montreux]

That is precisely what got us into so much trouble in 2008. Banks bundling mortgages together and then trading them on.

[Des Morgan]

That's correct. And the Edinburgh reforms will make both of those practices possible again.

[Skip Montreux]

You're kidding.

[Des Morgan]

Sadly, I'm not kidding. Critics of the reforms see a future scenario where what happened in 2008 could very well happen all over again.

[Skip Montreux]

Well, of course it could. What else would you expect?

[Des Morgan]

But there's more. Other reforms included are the ability for insurance firms to invest in infrastructure projects that are illiquid and therefore difficult to sell later. That would include projects like social housing and wind farms.

[Skip Montreux]

I guess investments like that would bring in a steady, reliable income. But the problem comes if the insurance company ever needs to raise capital quickly for some reason and pull their money out. It's very difficult to do that.

[Des Morgan]

Correct. And that is why they were off limits till now. There is even mention of cryptocurrencies and the possibility of establishing the UK as a center for their exchange cryptocurrencies.

[Skip Montreux]

Even after this whole recent FTX scandal?

[Des Morgan]

That's right, even after that scandal. But perhaps the measures that will anger the public most is the removal of the ceiling on bankers bonuses.

[Skip Montreux]

Oh yes. I can easily see how people would be annoyed with bankers getting larger bonuses. With rising expenses and inflation, a lot of people have a lot less money than before.

[Des Morgan]

The final recommendation the Edinburgh reforms tackle is the hiring and compensation package of executives. Essentially, the reforms seek to make it easier to hire executives and cut down on the regulations that financial institutions must follow when compensating them.

[Skip Montreux]

I would imagine that unlimited bonuses should help there too.

[Des Morgan]

Yeah, it probably won't do any harm, will it?

[Skip Montreux]

So, Des, the big question I have for you is, do you think these reforms will help the UK economy?

[Des Morgan]

It's hard to say at this point. The critics have a good point, but then so do the supporters of the reforms. I guess if it brings business into the UK and risks are well managed, it could be a positive.

[Skip Montreux]

Just how big is the UK financial sector?

[Des Morgan]

Oh, it's no doubt a big earner to put it into perspective. In 2021, even after Brexit, the financial services sector still contributed 1 73.6 billion pounds to the UK economy, or 8.3% of total economic output.

[Skip Montreux]

Yeah, that is significant. I have one more small question.

[Des Morgan]

Okay, what's that?

[Skip Montreux]

Why are they called the Edinburgh Reforms?

[Des Morgan]

That's an easy one. Jeremy Hunt, the UK's Chancellor of the Exchequer, made the announcement in Edinburgh, Scotland.

[Skip Montreux]

Well, that makes perfect sense then.

[Des Morgan]

And one last note. Since making the announcement on 9 December, the pound has strengthened just a little. So the London Stock Exchange is once again the largest stock market in Europe.

[Skip Montreux]

Well, there you go. You can once again hold your head up high and be a proud Brit.

[Des Morgan]

It takes a little bit out of the sting of England exiting the World cup at the hands of France.

[Skip Montreux]

Oh, I wasn't going to bring that up.

[Des Morgan]

I appreciate that you didn't, but now

[Skip Montreux]

I think it is time for you and I to get D2V down to vocabulary.

[Narrator]

Do you find down to Business English useful in your English studies? Would you like to support the show? Consider becoming a D2B member today. Down to business English memberships come with three great benefits. First, D2B members receive bonus content in the form of exclusive members only episodes. Second, within moments of a new episode being released, an audio script is automatically emailed to you. There is no need for D2B members to go through the time consuming process of visiting the website, logging into their account, locating an episode, and then downloading the audio Script file. And third, D2B members have 100% access to the entire library of audio scripts, all the way from season one, episode one right up to the most recently released episode. Interested in becoming a member? Just visit the down to Business English website and click on the membership link at the top of the page.

[Des Morgan]

Let me get D2B started with the expression on a different tack, which means to change the subject.

[Skip Montreux]

This expression originally comes from the old sailing ships, doesn't it, Des?

[Des Morgan]

Yeah, it does. Sailing ships use ropes to set the sails at different angles against the wind. These ropes are called tacks. If you want to change the direction of the ship, you have to use a different tack.

[Skip Montreux]

Wow, that is a good mental picture to help remember this expression.

[Des Morgan]

In the opening of today's episode, Skip changed our small talk conversation from the subject of the weather to the subject of COVID restrictions in China using exactly this expression.

[Skip Montreux]

I said on a different tack. I hear that China is relaxing some of the COVID restrictions staying on the same tack.

[Des Morgan]

How would you use this expression in a Business situation, Skip.

[Skip Montreux]

Oh, I would definitely use it to transition to a new topic in any presentation I give. For example, if I have been talking about this quarter's final sales numbers in an internal meeting, and then I wanted to transition to the subject of the company's year end party, I might say something like on a different tack, who wants to be Santa Claus at the company party this year?

[Des Morgan]

Do you know what? That's a role I've played a few times in my life.

[Skip Montreux]

Oh really? You would make a good Santa. Me? Not so much.

[Des Morgan]

You know what? It's fun.

[Skip Montreux]

I'm sure it is.

[Des Morgan]

You should give it a try too sometime.

[Skip Montreux]

The next item on the D2V list is the idiom the nuts and bolts of something literal. Nuts and literal bolts are what hold a physical product or structure together. So when you use this idiom, you are referring to the basic information or details of something.

[Des Morgan]

This is one of my favorite idioms

[Skip Montreux]

and you used it in the report. After giving some background information about the Paris Stock Exchange, DES transitioned into the main topic of the Edinburgh reforms by saying, let me get into the nuts and bolts of the reforms.

[Des Morgan]

In other words, I wanted to start talking about the basic information related to

[Skip Montreux]

the reforms today in my office. The very first thing that happened this morning was one of our salespeople gave me a few invoices he wanted to send to his customers. He asked me to go through the nuts and bolts of the invoices and check every detail to make sure there were no mistakes.

[Des Morgan]

And did you find any?

[Skip Montreux]

A couple of minor ones, but nothing serious. Although it would have been a little embarrassing to send them out with those small mistakes.

[Des Morgan]

It's a good thing you checked then.

[Skip Montreux]

What's our next D2V item?

[Des Morgan]

Next, I have the two part adjective pent up, which means to be confined or held back in some way.

[Skip Montreux]

Someone might appear calm and collected on the outside, but inside they are full of anger. That would be pent up angel anger.

[Des Morgan]

You're right. It's often used in reference to some type of emotion like anger or desire. In my report I talked about pent up consumer demand.

[Skip Montreux]

A very common business expression.

[Des Morgan]

It is. It refers to a situation where customers have been unable to do or buy something. So when they're able to, they make a lot of purchases all at once.

[Skip Montreux]

The example you used was the pent up demand for luxury goods in China. Now that Covid restrictions are being lifted. In other words, because of COVID consumers haven't been able to shop very much. But now that they can, they are going to buy a lot.

[Des Morgan]

People in this country do seem to like European luxury goods. So yes, I can imagine there is a lot of pent up demand.

[Skip Montreux]

Next up, we have another business adjective, illiquid. An illiquid asset is an asset which cannot be easily converted into cash. In the story DES reported on the financial reform that will allow insurance firms to invest in illiquid assets such as housing and wind turbines.

[Des Morgan]

In other words, housing and wind turbines are difficult to change into cash.

[Skip Montreux]

Can you give us other examples of illiquid assets?

[Des Morgan]

Sure. Thinly traded stocks are often described as illiquid. Although you can theoretically sell them, there may not be a buyer on the other side of the transaction. A further issue is trying to sell a larger amount of illiquid stocks would affect the price adversely thinly traded stock.

[Skip Montreux]

What is that?

[Des Morgan]

An example from your country in fact would be the small exploration stocks that are prospecting for gold or some other mineral. Because the trading volume of the shares is so small, the shares don't change hands very often.

[Skip Montreux]

Okay, now I see what you mean. Our final word for today is the noun ceiling. Now I am very sure that all of our listeners know that a ceiling is the top side in a room,

[Des Morgan]

not the wall and not the floor.

[Skip Montreux]

Not a wall and not the floor. The opposite of the floor actually.

[Des Morgan]

And I'm sure our listeners know this

[Skip Montreux]

word pretty well, but they might not know that it can also be used idiomatically to refer to the maximum limit of something. A limit or barrier that cannot be passed.

[Des Morgan]

Yeah, they might not be used to that usage.

[Skip Montreux]

In the story, DES mentioned that the ceiling set on bankers bonus payments will be removed by the Edinburgh reforms. In other words, the current bonus limit is going away.

[Des Morgan]

A glass ceiling is commonly used to describe a situation where where there's an invisible limit. Female executives often say there's a glass ceiling at the firm where they work, meaning they can only be promoted to a certain position in the organization, but just cannot get beyond that.

[Skip Montreux]

The problem with glass ceilings is that usually they are illegal or at the

[Des Morgan]

very least they fall into that sort of grey area.

[Narrator]

Would you like to support down to business English? Help D2B reach more people wanting to improve their Business English skills? Be sure to subscribe to down to Business English on Apple podcasts or any place podcasts are found. While you are there, why don't you leave a rating and a review down to Business English Business News to improve your business English?

[Skip Montreux]

Thanks for that report on the Edinburgh Reforms Desk. It sounds like new and exciting territory ahead for the UK financial industry.

[Des Morgan]

I just hope that these reforms don't lead us down a path to yet another global financial meltdown. History does have a habit of repeating itself.

[Skip Montreux]

True that. Well, on a different tack, I would just like to take a moment and say thank you Mr. Desmorgan, for all of your effort on down to Business English this year. It is really great that you've been able to be more active behind the microphone.

[Des Morgan]

My pleasure, Skip. There have been big changes in my life this year, this new job in Changsha being one of them. But I'm really glad that I've been able to do more work on the show and record more regularly.

[Skip Montreux]

And I hope your schedule lets you stay just as active active or more active on D2B in 2023.

[Des Morgan]

No worries there. You know what? I've got a lot of pent up podcasting energy inside me.

[Skip Montreux]

I'm so glad to hear that. So Des, you have yourself a safe trip back to Scotland and enjoy your time with the family.

[Des Morgan]

I will. You have yourself a happy Christmas. And is this the ceiling for D2B episodes this year?

[Skip Montreux]

No. I think Samantha and I will be able to squeak one, maybe two more shows out before December 31st.

[Des Morgan]

Good to hear that. Good for all our listeners.

[Skip Montreux]

When do you think you will be back on the air with us?

[Des Morgan]

If everything goes smoothly and I get through my return quarantine with no issues, I would say I'll be back recording early in February sometime.

[Skip Montreux]

I look forward to that.

[Des Morgan]

And so do I.

[Skip Montreux]

Thanks for listening everyone. See you next time.

[Des Morgan]

Bye for now.

[Narrator]

Have a comment or question about today's show? Don't be shy. Visit the D2B website or Facebook page and post any comments or questions there. Skip, Des or Samantha will be sure to leave a reply down to Business English Business News to improve your Business English.