Recommendation 23

HM Government Acknowledged

We agree with the Committee’s recommendation that “regulators should make every effort to limit the costs of compliance with the rules… [but] should not let short-term costs or the views of market participants… limit the scale of their ambition when finding opportunities to genuinely simplify the regulatory framework without sacrificing resilience” (Paragraph 30). The FRF proposes a form of regulation in which most technical rules are made by regulators rather than set out in law. This approach is less prescriptive than the approach adopted at the EU level, and it will enable us to tailor our approach and account more effectively for UK circumstances when we make policy. Our work to simplify the prudential regime for non-systemic domestic banks and building societies through our “Strong & Simple” initiative, in which the Committee is already taking a close interest, is a relevant example of our approach in this respect. Our vision is for the simplified framework to be less complex and costly for these firms to operationalise, but to achieve the same overall level of resilience. We are also simplifying and streamlining the unnecessarily burdensome reporting for the insurance industry under the on-shored EU regulations – we have completed Phase 1 of the simplifications, largely focused on smaller firms, and intend to consult on Phase 2 in autumn.5 We also note that the Committee’s report raises important considerations around the costs of compliance with rules and with changes to rules. We already conduct cost-benefit analysis (CBA) of proposed rules to determine the expected costs and benefits of our proposals. In addition, as part of the FRF we will enhance our approach to CBA including through the establishment of a statutory CBA panel. We will set out our approach to CBA publicly, as required by the FRF measures in the FSM Bill, and will aim to work efficiently with the new panel to ensure the policy-making process is delivered effectively.