A new report by parliament’s Financial Services Regulation Committee has found that the country’s top regulators are too risk-averse, which is hampering innovation and growth.
The report, which was published on Friday (13 June), found that the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)’s secondary international competitiveness and growth objective is being held back by pervasive risk aversion, regulatory uncertainty, and inefficiency in the regulatory system.
The Committee found long-standing issues that limit or introduce unnecessary frictions to financial services firms’ ability to grow, innovate, and compete and that discourage new entrants, both domestic and foreign.
The report warns that the burden of compliance in the UK is perceived to be disproportionately high and emphasises that the regulators do not have a clear understanding of the cumulative burden of regulation on financial services firms.
The Committee identified a prevalent lack of proportionality in the regulators’ approach, such as the FCA’s failure to sufficiently distinguish between wholesale and retail markets and the PRA’s approach to capital requirements.
The report also underlines that regulatory uncertainty regarding the interpretation of the Consumer Duty and the interaction between the FCA’s rules and the Financial Ombudsman Service (FOS)’s decision processes may reduce the attractiveness of investing in the UK.
“The deeply entrenched culture of risk aversion and the high cost of compliance are among the regulatory barriers that are unnecessarily constraining firms,” said Lord Forsyth of Drumlean (Chairman of the House of Lords Financial Services Regulation Committee).
He added that barriers are getting in the way of doing what these firms do best, which is competing, innovating and growing.
“The lack of clarity under the Consumer Duty and the FOS’s evolution into a quasi-regulator, coupled with regulatory uncertainty, also gives the impression that there is a regulatory penalty on investment in UK businesses.
Lord Forsyth noted that the UK’s financial and insurance services sector contributes over £200 billion to the economy, so its continued success is vital for the UK’s economic prospects.
“Regulators need to address barriers and do more to remove, or mitigate at the very least, anything that makes the UK a less attractive place to do business,” he said.
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