UK Financial Services Strategy Act 1.0

Objectives

• Optimize Investment Flow: Enable pension funds and investors to efficiently access UK-based opportunities.
• Attract Global Capital: Position the UK as the top destination for investment and business growth.
• Localize Wealth: Provide options for keeping wealth within local communities while ensuring fairness and high returns.

Key Principles

• Utilize the British Sovereign Wealth Fund (BSWF) to manage ETFs, replacing a centralized platform with a structured investment vehicle.
• Establish a privately run community banking framework to localize investment, with strict regulations for fairness and profitability.
• Enhance existing tax incentives and capital access structures to align with these new mechanisms.

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British Sovereign Wealth Fund (BSWF): Managing Investment Through ETFs

The BSWF will serve as a government-owned entity managing a range of ETFs, each targeting specific sectors or investment strategies. This replaces the previously considered investment platform, providing a more accessible and diversified way for investors—including pension funds and individuals—to participate in UK opportunities.

Structure

• ETF Categories:
  
  • Sector-Specific ETFs: Target priority sectors such as energy, farming, and technology (e.g., Clean Energy ETF, Agritech ETF).
  • Risk-Based ETFs: Cater to varying risk appetites, such as the High-Risk Agriculture ETF for higher potential returns.
  • Community Development ETFs: Fund local projects and businesses via community banking initiatives.
• Investment Process:
  
  • Investors purchase ETF shares through standard brokerage platforms.
  • The BSWF manages underlying assets, ensuring alignment with investment goals, and provides transparent performance reports.
• Incentives:
  
  • Tax Incentives: Reduced capital gains taxes for investors in priority sector ETFs.
  • Pension Fund Credits: Tax credits for pension funds allocating over 10% of their portfolio to BSWF ETFs, offsetting fees or boosting reinvestment.

Benefits

• Offers a liquid, diversified, and market-driven way to invest in UK sectors.
• Encourages domestic investment without mandates, aligning with profit-driven strategies.

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Community Banking Framework: Localizing Investment

This revolutionary framework enables private-sector entities to establish community banks, focusing investment within local areas. It is not government-owned or mandated but creates an opportunity for private innovation, with tight regulations ensuring fair loans and optimal investor returns.

Structure

• Private Sector Operation:
  
  • Community banks are established and operated by private entities (e.g., banks, investment firms, startups). Competition must be allowed to flourish between these. It is up on the investor to find the best return. 
  • The government provides the framework but does not own or control these banks.
• Regulatory Framework:
  
  • Licensing: Banks require a special license from the Financial Conduct Authority (FCA), verifying local focus and risk management.
  • Local Investment Mandate: At least 70% of lending and investment must support businesses and projects within a defined local area (e.g., county or region).
  • Fair Lending Practices: Interest rate caps on certain loans and transparent terms to prevent predatory lending.
  • Investor Protection: Strict capital adequacy, risk management, and reporting rules to safeguard depositors and investors.
  • Management: Restriction of CEO (shareholders) living within 20 miles of the registered office which must be in the community for which is managing. 
• Incentives:
  
  • Tax Breaks: Reduced corporate tax rates for community banks maintaining over 70% local investment.
  • Government Guarantees: Partial backing for small business loans to reduce risk and encourage lending.
• Community Development ETFs:
  
  • The BSWF manages ETFs that invest in community banks and their loan portfolios, linking local investment to broader markets.

Benefits

• Borrowers: Local businesses and individuals gain fair access to capital.
• Investors: Higher returns from localized investments, supported by government incentives and ETF integration.
• Communities: Wealth retention fosters regional growth and resilience.

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Metrics to Track Success

The following metrics ensure the framework’s effectiveness:

BSWF and ETF Metrics

• Total Assets Under Management (AUM):
  
  • Target: £10 billion within 5 years.
  • Measurement: Sum of investments across all BSWF ETFs.
• Sector-Specific Investment:
  
  • Target: 30% of AUM in priority sectors (e.g., energy, farming).
  • Measurement: Percentage of AUM allocated to these sectors.
• ETF Performance:
  
  • Target: Outperform the FTSE 100 by 2% annually.
  • Measurement: Annualized return compared to benchmark.

Community Banking Metrics

• Number of Community Banks:
  
  • Target: 50 within 5 years.
  • Measurement: Count of FCA-licensed community banks.
• Local Investment Ratio:
  
  • Target: 75% of each bank’s portfolio invested locally.
  • Measurement: Average percentage of local investment.
• Loan Default Rates:
  
  • Target: Below 5%.
  • Measurement: Percentage of defaulted loans.
• Interest Rate Fairness:
  
  • Target: Rates within 1% of national averages for similar loans.
  • Measurement: Average rate differential.

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