FCA and PRA’s secondary competitiveness and growth objective

Throughout the evidence we received, there was a clear link made between the current regulatory culture characterised by risk aversion and its impact on the advancement of the secondary objective. We heard that this culture is driven by the repercussions of the Global Financial Crisis and the conflicting pressures under which the regulators operate.

Firms have told us that they are inundated by information requests from the FCA and the PRA, who are not always transparent about how this information is used. Importantly, we received evidence suggesting that reporting requirements in the UK may be more burdensome than in competing jurisdictions, which may negatively impact on the UK’s perceived attractiveness as a global financial services centre.

There has been a significant degree of ‘mission creep’ as both regulators appear to have increasingly expanded the range of their activities into areas of business management that are outside their core responsibilities. This has increased bureaucracy and imposed significant monetary and resource demands on firms. We recognise that this trend is, in part, attributable to the varying requirements placed on the regulators by Government. However, there are clearly some areas of regulatory activity that were implemented on the regulators’ own initiative and have intruded into areas of business management that are beyond their regulatory scope.

The cumulative burden of regulatory compliance in the UK is perceived to be disproportionately high, diverting resources that could otherwise support the growth of the financial services sector. Whilst difficulties in producing rigorous international comparisons may prevent definitive conclusions, the evidence we received suggests that significant concerns remain as to the relative expense of operating in the UK which must be addressed.

We recommend that, building on its work to establish a baseline for the administrative costs of regulation, the Government commissions an independent study to assess the cumulative cost of compliance in the financial services sector relative to other international jurisdictions.

The regulators, particularly the FCA, do not have a clear understanding of the cumulative burden of regulation due to limitations in their approach to cost benefit analysis. This prevents them from recognising and addressing the negative impact that their activities have on the growth and international competitiveness of the sector. The design of regulation must be informed by proportionality, impact assessments, and CBA.

The FCA and the PRA should work with their respective CBA Panels to develop a rigorous approach to assessing the cumulative burden of compliance, accounting for monetary and resource demands.

To improve regulatory decision-making, we recommend that the FCA and the PRA, in conjunction with their respective CBA Panels, create a joint cost of compliance working group to study how the regulators may develop their understanding of cumulative compliance cost and integrate this into their CBA process.

Assessment of the costs and resource demands that regulatory reforms impose on firms should not be limited to the CBA carried out during the consultation period. We recommend that the FCA and the PRA include an assessment of actual costs imposed after the implementation of large-scale regulatory reforms as part of their post-implementation reviews.

The UK’s financial services regulatory landscape is characterised by notable complexity and several regulators with overlapping remits. Firms find it challenging to navigate and remain compliant in this environment, introducing unnecessary burdens. A perception that it is difficult to conduct business in the UK harms international competitiveness.

We are concerned by the evidence that regulatory overlap has delayed the implementation of Open Banking reform, which has impeded innovation by obstructing firms’ ability to develop new products. The Committee recognises the importance of cross-regulator collaboration, but this must not delay the timely delivery of key reforms. The Government should draw lessons from the delays introduced by the Joint Regulatory Oversight Committee.

We welcome the Government’s commitment to simplify the UK’s regulatory regime and its announcement to integrate the PSR into the FCA. The Government has committed, through its regulatory ‘Action Plan’, to remove duplication and streamline processes where they hold back growth in the system . We recommend that the Government undertake a focused assessment of the financial services regulatory landscape to identify where regulatory overlap can be eliminated.

The efficiency with which the FCA and PRA process authorisations is an important element in the continued growth of the UK financial services sector. Efficient authorisations allow domestic firms to launch new products quickly and international firms to easily locate capital and talent in the UK. Therefore, it is worrying that firms continue to raise concerns about authorisation timescales.

Concerningly, we received evidence that the FCA and PRA are slower to process authorisations than regulators in competing jurisdictions, particularly in key areas such as the authorisation of new products, senior managers, and branches. This has negatively affected the UK’s international competitiveness, resulting in the loss of business and investment.

Whilst the FCA and PRA’s published metrics on authorisation timescales show improvements, witnesses noted that this apparent progress does not reflect the experience of firms due to the exclusion of the intervals when further information is required.

The FCA and PRA must work to reduce authorisation timelines. This should be accompanied by a renewed cultural focus on consistent improvement of operational efficiency across all levels of the organisation.

The Government should review the statutory operating service metrics for the FCA and PRA to ensure they are in line with comparative jurisdictions.

There is an apparent discrepancy between the progress that the FCA and PRA report on the efficiency of authorisations and the experience of firms going through those processes. The FCA and PRA should collect and publish further data in this regard.

The continued development and integration of new technologies, such as digital assets and AI, into the financial services sector may alter how sections of this industry function. We are concerned by evidence to suggest that the UK regulators may not be addressing this as speedily as they should. The FCA and the PRA must do more to facilitate innovation, providing certainty and clarity to empower firms to use AI, or to develop new products and technologies.

The potential for regulatory and supervisory technology to automate compliance and improve the regulators’ ability to fulfil their functions is compelling. The FCA and the PRA must review their operational processes and rule-making functions to explore how they might make better use of regulatory and supervisory technology.

We recognise that there are differences between the regulatory and financial systems in the UK and Singapore, but we consider that there are valuable lessons to learn from Singapore’s approach which could assist foreign firms in navigating the UK when thinking about locating new business here. As set out by the PRA, the FCA and the PRA should work together to develop a proposal for a ‘concierge service’ in the UK, as part of broader efforts to instil a culture based on efficiency and an appropriate degree of flexibility.

We are concerned by evidence which indicated that there are inconsistencies in the quality of supervision. Firms should expect consistency in the staff that supervise them and supervisors who understand their business.

There is a substantial discrepancy in the quality of supervision received by the largest financial institutions and the rest of the sector. Whilst it is right that the regulators prioritise the supervision of systemically important firms, this must not come at the expense of the support offered to non-systemic firms, which risks harming the ability of small and medium sized firms to grow.

The FCA and PRA must do more to improve supervisory staff’s practical understanding of financial services firms. We recommend that the FCA and PRA explore developing a formal secondment system to both send supervisory staff out to regulated financial services firms, and to bring employees from regulated firms in. We recognise that there are practical issues to consider—regulatory capture must be avoided, and commercial confidentiality must be protected—but appropriate protections could be put in place.

The FCA and PRA should review the compensation they offer to staff with a view to introducing appropriate incentives to help to attract talent with a practitioner ’s background in regulated financial services sectors.

The FCA and PRA must review how their supervisory staff are deployed to ensure greater consistency in the staffing of supervisory teams and to address reports of frequent rotation amongst supervisors.

The FCA does not do enough to distinguish between firms that cater to wholesale and retail markets, or market segments in its regulation and supervision. Consequently, this has imposed unnecessary burdens and frictions on firms that could constrain their ability to grow.

We recognise that thresholds represent an essential tool for regulators to differentiate between certain types and sizes of firms and apply specific regulation proportionately. However, we received evidence that such thresholds can constitute ‘cliff edges’ which may hinder smaller firms’ ability to grow. We encourage the Government to work with the Bank of England and FCA to explore how ‘cliff edges’ might be smoothed.

We agree that the FOS has become a quasi-regulator as its actions have regulatory impacts by creating precedents that the FCA requires firms to follow. The responsibility for issuing binding rules and guidance lies with the FCA. The lack of alignment between the FOS and the FCA generates an unacceptable level of uncertainty for firms, stakeholders, and investors.

Firms should be confident that compliance with regulations and the law will be sufficient to avoid mass redress events, but currently that certainty and predictability is not guaranteed.

The reports of practices by claims management companies who submit large volumes of spurious or meritless claims to firms and the FOS are concerning, causing undesirable outcomes for both consumers and firms. We welcome the introduction by the FOS of fees for claims brought to them by professional representatives. The impact of these reforms must be monitored closely to ensure they have a material impact on poor behaviour by CMCs.

The uncertainty caused by the way in which the FOS operates has created a perception of a regulatory ‘risk premium’ or penalty to the valuations of UK financial services firms that can act as a barrier to foreign investment in the UK financial services sector and presents a significant limitation to the advancement of the FCA’s secondary objective. The tension between the FCA regulations and the FOS’s decision processes is a long-standing issue and the need for action to address this and to remove the uncertainty it creates from the regulatory system is long overdue.

The FCA’s and FOS’s response to their joint call for input to modernise the redress system and the Government’s review of the FOS must both result in minimising, if not eliminating entirely, the current uncertainty and unpredictability caused by the FOS’s powers and discretion.

Any reform to the redress framework should be focused on ensuring that the FCA ’s and FOS’s views on regulatory requirements are consistent . We believe the following actions should be prioritised: (a) That the FCA is consulted on judgements that are likely to have sector-wide implications. We agree that the FCA should review its DISP rules with a view to enabling the FOS to pause its timescales while it awaits FCA input on the interpretation of its rules and guidance. (b) The precedent-setting effect of FOS decisions should be reviewed, with a view to removing it entirely , particularly for mass redress events whilst retaining the FOS’s original purpose of providing quick and free individual redress. (c) We welcome that the Government has indicated it will consider legislative change if necessary. We stress that the FOS’s remit must be brought closer in line with its original mandate, to provide swift redress rather than examining major complex issues—it cannot continue to function as a quasi-regulator.

The FCA’s implementation of the Consumer Duty has introduced considerable uncertainty for domestic and international firms operating in the UK. This uncertainty is driven by a lack of clarity on the FCA’s expectations as to how firms should comply with the Consumer Duty, including which markets and customers it applies to.

Should the FCA fail to address concerns about the Consumer Duty requirements there is a risk that the FOS may inadvertently fill this gap, potentially creating inconsistencies in interpretation of the Duty’s application.

The FOS and the FCA’s review of the redress system must result in clear actions setting out how they will ensure that there is a consistent interpretation of regulatory requirements associated with the Consumer Duty.

We welcome the FCA’s review of its handbook rules following the introduction of the Consumer Duty. However, we also recognise the cost and complexity created by layering new regulation onto similar existing requirements.

It has been almost two years since the Consumer Duty was introduced—the FCA must work at pace to remove redundant or duplicative rules and requirements to provide firms with the certainty and clarity they need to maximise the Duty’s benefits.

Firms have told us that uncertainty around the FCA’s expectations on the Consumer Duty , including over which markets and customers it applies to is causing them to take an overly risk-averse approach to complying with the Duty, adding unnecessary volume to an already high burden of compliance. The FCA must engage with firms to identify the key drivers behind this reaction. It must review the guidance it has provided on the Consumer Duty and identify where further clarification is needed of its expectations on how the Duty should be implemented.

The introduction of the secondary objective has increased the regulators’ focus on the impact that their activities have on growth and international competitiveness, but it has also brought into relief long-standing issues that limit or introduce frictions to firms’ ability to grow, innovate, compete, and attract investment.

Cultural change is key, and this must be set from the top. A culture of risk-aversion has led to a proliferation of regulatory activity that is duplicative and complex. We were told that the regulators do not prioritise the requests they make of firms and have overseen a proliferation of the activities they regulate, beyond their core responsibilities. Witnesses suggested that the UK’s regulatory framework is highly complex and that they do not receive enough support to navigate and operate in this environment. Unacceptable levels of uncertainty persist.

Cumulatively, we were told these issues introduce significant frictions for firms, which in aggregate risk constraining growth across the sector. We heard that aspects of the UK’s regulatory regime that are more costly and complex than competing jurisdictions negatively impact on the perceived attractiveness and international competitiveness of the UK as a global financial centre.

Failing to address the issues we have identified in this Chapter risks deepening the perception that there is a regulatory ‘risk premium’ or penalty that reduces the attractiveness of investing in the UK and poses a serious constraint on the advancement of the aims of the secondary objective. (Paragraph 196) The secondary objective and the wider economy

The successful advancement of the PRA’s secondary growth and competitiveness objective will depend on its ability to ensure that lenders are able to provide lending for productive investment. We are concerned to have heard evidence suggesting that the current regulation of capital requirements on lenders constrains firms’ ability and willingness to do so, especially for smaller and mid-sized banks.

The ‘one size fits all’ approach arises in part from the way the UK authorities apply the Basel Framework to UK lenders. The Basel Framework—‘soft law’ standards issued by the Basel Committee on Banking Supervision—is aimed at internationally active banks. The UK’s approach can be contrasted with that of other jurisdictions such as the US whose capital framework applies on a graduated and proportionate basis depending on the size and complexity of the bank and the level of risk it poses to the system. The Committee welcomes the Small Domestic Deposit Takers (SDDT) regime as a helpful development but considers that the PRA could go further.

The PRA should consider whether it is appropriate to apply the Basel Framework to all UK domestic lenders or whether a more proportionate and tailored approach could be applied to determining capital requirements for lenders who are not internationally active. The Committee considers that such an approach would not be inconsistent with the secondary objective which is stated to be “subject to aligning with relevant international standards”. This approach will require supervisors to have an appropriate level of experience and expertise to understand individual firms’ businesses and be able to exercise judgment when making supervisory decisions ( in this regard, see our conclusions and recommendations in Chapter 2, paragraphs 128 to 132). This approach will also require a culture that is not unduly risk-averse, and which allows, with appropriate safeguards and controls, supervisors to make risk- based decisions.

This is not entirely within the control of the PRA. The Government should work with the Bank of England to review the cumulative impact that the regulatory capital requirements and MREL requirements have on lenders, specifically regarding the cost of lending. This should be done with a view to balancing financial stability and enabling both banks and building societies to lend for productive investment to support growth.

Firms that use the standardised approach generally have higher capital requirements than firms that use the IRB. Obtaining approval for internal models is a lengthy and costly process which favours larger firms.

Our recommendations in paragraph 230 apply equally here. The PRA should consider whether it is appropriate to continue to apply Basel standards to UK domestic lenders or whether a more proportionate approach could be applied to determining capital requirements.

We are concerned by evidence which suggested that the UK applies higher risk weightings to lending than competing jurisdictions, such as the EU. The Government should commission the PRA to report on the UK’s approach to capital requirements in comparison with competing jurisdictions, as well as to evidence why it considers the current rates to be appropriate.

The PRA should examine its process for approving IRB models and seek to make that process quicker and less costly for firms.

We are concerned by the lack of data on the proportion of total lending made available for productive investment. The Government should work with the Bank of England to research what proportion of total lending is made available for productive investment.

The Committee is concerned by the chronically low levels of financial literacy and numeracy skills in the UK adult population, which appears to underpin UK savers’ reluctance to invest their savings into equities and other investments. The average UK consumer does not hold a large amount of savings and requires more support, so any attempt to change the incentives on savings products for consumers must be done with care and take these factors into consideration.

The regulatory environment has inhibited those who have sufficient savings and may benefit from investing. The Committee recognises the inherent benefit to consumers who can invest and benefit from higher returns and recognises these reforms could help deepen the UK’s secondary capital markets. However, we did not receive satisfactory evidence to suggest that the creation of an equity investment culture in the UK would, by itself, increase productive investment, nor facilitate growth in the wider economy. However, an increase in savings into pension funds may increase the amount of investment available for productive assets.

A sustainable shift in saving habits rests on consumers who are financially literate and numerate and trust the financial services sector—this will not be addressed through siloed policymaking. HM Treasury must work with the FCA and industry to support adults in attaining financial literacy and numeracy; HM Treasury must work with the Department for Education to set out how it can improve the provision of financial literacy and numeracy education for students, with emphasis on early years education.

The need to address failures in the financial advice market is long overdue. The FCA must allocate resource to prioritise the delivery of the Advice Guidance Boundary Review. UK consumers require more support and the FCA has already taken five years to deliver these reforms. Any additional delay is unacceptable and will negatively impact on consumers.

Regulation alone cannot generate economic growth. The Government, the regulators, and industry must be aligned in their approach to improve the provision of finance for UK businesses and productive assets. Whilst this requires regulatory action to identify and remove any barriers to productive investment, the Government’s growth objectives cannot be achieved without a joined-up approach.

The reforms to Solvency UK, and the ongoing pension reforms, may help to deepen the UK’s capital markets by unlocking capital in the insurance and pensions sector. Nevertheless, the widespread and quick allocation of investment by the sector rests on the FCA and PRA acting as proportionate and enabling forces to allow firms to quickly take advantage of developing opportunities.

Whilst we welcome the Government’s pension reforms to deepen the UK’s capital markets and generate higher returns for pension holders, we hold serious reservations regarding any proposal to mandate pension funds to comply with a prescribed asset allocation. We are concerned that such a mandate compromises trustees’ fiduciary duty to their members. We will continue to monitor the Government’s pension reforms.

Addressing the gap in growth funding will be vital if the UK is to take advantage of its strengths in IP generation for the benefit of economic growth, and resultant job and wealth creation. The Government must set out how the UK’s financial services sector can provide more of this financing. The Government, the FCA, and the PRA should engage with industry to identify the key regulatory barriers in this space.

The Government should use its review of MiFID to examine how regulation can unlock the availability of research on smaller and medium sized UK companies. (Paragraph 307) The role of Government

At the moment, the metrics comprise a set of static data predominantly measuring operational processes, which do little to track the impact of regulation on growth in the wider economy. For us, this is further evidence that the answer to the question of what mechanisms there are for the regulators to transmit their actions into growth in the wider economy has not yet been fully developed or articulated.

HM Treasury states that it did not want to require the regulators to report against outcomes that they do not fully control. However, success in advancing the secondary objective should be, in part, about facilitating growth in the UK economy—currently, there is no explicit direction on this from HM Treasury within the metrics to ensure this can be measured or monitored. Without some measure of the regulators’ actions on economic growth, it will be difficult to scrutinise whether or not the secondary objective is being delivered.

We also recognise the difficulties associated with benchmarking the performance of our regulators with their international counterparts but again, without some measure to enable international comparisons, it will be difficult to assess whether we are competing with international jurisdictions more effectively and in a more proportionate way.

A comprehensive review and revision of the secondary objective metrics is required. This should be commenced as soon as possible after the publication of the regulators’ second secondary objective progress reports , due by summer 2025. As part of this review, HM Treasury and the regulators should prioritise introducing more granularity to the metrics, ensuring there is enhanced transparency around the operational effectiveness of the regulators which better reflects the experience of firms of all sizes.

HM Treasury should include outcomes-based secondary objective metrics that aim to illustrate the impact of the regulators’ action on the real economy. In our view, it would be possible to do more to set the data reported against the current metrics with outcomes in the real economy (such as tracking trends in the markets the FCA and PRA regulate) as a way of starting to draw a more explicit link between the actions of the regulators and the progress of the objective to facilitate growth in the wider economy.

HM Treasury should undertake dedicated research, in collaboration with the FCA and PRA, on how the UK regulators’ performance can be effectively measured against their international counterparts. Failing to do so will leave a significant gap in our understanding of how the international competitiveness element of the secondary objective is being advanced.

It is vital that the Government ensures that there is a shared understanding between itself and the regulators over what “informed and responsible risk-taking” means. However, the regulators cannot expect the Government to set the ‘risk appetite’ entirely. What the Government can and should do is give recommendations and set parameters or benchmarks in relation to its economic policy and should be clear in what it asks. The regulators need to take responsibility for ensuring that their policy and supervision adequately assess risk while paving the way for a stable regulatory environment that facilitates growth and innovation.

Moreover, we think there is a danger that the narrative around the secondary objective could become dominated by the issue of where the setting of the risk appetite resides.

We recommend that the Government use the upcoming Financial Services Sector Strategy to convert the general ambitions around enabling informed and responsible risk-taking set out in the remit letters into more actionable policies for the regulators to take forward. It needs to draw a clear link between the economic outcomes it wants to see, the levers available to the regulators to support this, and the necessary political cover to enable the regulators to implement these reforms.

The Government should create a clear , specific steer to the regulators on how they might deliver on the strand of the secondary objective that requires them to facilitate growth in the wider economy, through linking the aims of the upcoming Financial Services Sector Strategy to specific secondary objective metrics.

We have been critical of the complexity of the regulatory system, and the regulators’ contribution to that complexity, for example, by creating a heavy compliance burden and areas of regulatory overlap. However, we recognise that the regulators themselves are subject to a multitude of regulatory objectives and principles, and that requiring the regulators to consider multiple and multi-faceted ‘have regards’ adds complexity to policy and rulemaking process, and risks slowing down decision-making.

Too many objectives muddle the work of regulators and supervisors, increase the risk of poor decisions, and can lead to a dilution or distraction in the performance of their tasks. We therefore welcome the Government’s commitment to review the number of ‘have regards’ placed on the regulators and urge the Government to rationalise and reduce these as far as is possible. The Government must ensure that the number of objectives, regulatory principles and have regards do not inflate to the point where the regulators are unable to balance their varying obligations.

The secondary objective has been in place for almost two years. It has catalysed a renewed focus on the efficiency of regulatory practice and focused the regulators’ efforts on removing the barriers to growth and international competitiveness in the sector. However, it is not yet clear whether the relationship between financial services regulation and growth of the wider economy has been clearly evidenced or established. We have demonstrated that there are areas where regulation plays a role in wider economic growth—capital requirements being the key example—but we have not received any evidence that the secondary objective is likely to have a significant impact on the growth of the wider economy. The introduction of a secondary objective, in addition to the numerous other requirements placed on the regulators, where they do not have the mechanisms to produce the outcomes the objective requires them to, risks diluting the regulators’ focus on their core responsibilities of ensuring financial stability, consumer protection, market integrity, and competition, in addition to complicating accountability.

The Government must keep the secondary objective under review, including the opportunity for legislative change to rationalise the regulators’ statutory objectives. The Government must report to Parliament and this Committee to evidence whether the secondary international competitiveness and growth objective has facilitated growth in the wider economy (including what academic research the Government has undertaken, or intends to undertake, to respond to our concerns set out in paragraphs 231, 256, 307, 332, and 333) within 12 months of the publication of this report; and subsequently on an annual basis.

The FCA and the PRA must report to the Committee within 12 months of the publication of this report to set out how they have responded to our recommendations. (Paragraph 358) < Back Next > © Parliamentary copyright 2025 A-Z index Glossary Contact us Freedom of Information Jobs Using this website Copyright Privacy notice Cookie policy Cookie Manager House of Lords - Growing pains: clarity and culture change required - An examination of the secondary international competitiveness and growth objective - Financial Services Regulation Committee Accessibility Email alerts RSS feeds Contact us Home Parliamentary business MPs, Lords & offices About Parliament Get involved Visiting Education House of Commons House of Lords What's on Bills & legislation Committees Publications & records Parliament TV News Topics Growing pains: clarity and culture change required - An examination of the secondary international competitiveness and growth objective Contents Chapter 1: Introduction Background Regulation of the financial services sector

We are concerned by the evidence that regulatory overlap has delayed the implementation of Open Banking reform, which has impeded innovation by obstructing firms’ ability to develop new products. The Committee recognises the importance of cross-regulator collaboration, but this must not delay the timely delivery of key reforms. The Government should draw lessons from the delays introduced by the Joint Regulatory Oversight Committee.

We welcome the Government’s commitment to simplify the UK’s regulatory regime and its announcement to integrate the PSR into the FCA. The Government has committed, through its regulatory ‘Action Plan’, to remove duplication and streamline processes where they hold back growth in the system. We recommend that the Government undertake a focused assessment of the financial services regulatory landscape to identify where regulatory overlap can be eliminated. Facilitating innovation and operational efficiency

Throughout the evidence, witnesses emphasised the importance of innovation to the competitiveness and growth of the UK’s financial services sector. We received evidence that there are regulatory constraints on innovation in the sector, notably that despite efforts from the FCA and the PRA to improve their operational efficiency, the authorisation process in the UK remains slow. We heard that slow authorisations introduce delays for firms entering the market and introducing new products, constituting a notable drag on the sector’s growth. Additionally, we heard that the FCA and the PRA’s operational efficiency compares unfavourably to regulators in other jurisdictions, reducing the UK’s attractiveness as a location for business and investment.

However, we also received evidence that there are significant opportunities for the FCA and the PRA to support innovation through regulatory interventions. Notably, the regulators can provide the frameworks necessary to develop and launch new products which, if delivered flexibly and at pace, can support the growth of the financial services sector. Witnesses also noted that by adopting a positive and proportionate approach to new technologies both regulators and firms can benefit from improvements in efficiency. Authorisations

Under FSMA 2000, any individual or firm seeking to carry out a regulated activity must first gain authorisation from the relevant regulator. 136 In doing so, the individual or firm becomes subject to the range of requirements that the relevant regulator considers appropriate. 137 FSMA 2000 requires the FCA and PRA to process complete applications for authorisation, for example to authorise new firms or senior managers, within statutory deadlines 138 (for an overview of the FCA and PRA’s statutory authorisation deadlines, see Appendix 8).

For individuals and firms, gaining authorisation is often a prerequisite for conducting business in the financial services sector. We received evidence that the FCA and the PRA are slow to authorise new firms and products. Chris Cummings told us: “We look at fund authorisations. There are service standards of three or six months, compared to in other jurisdictions where it is 48 hours.” 139

We heard that the FCA’s approach to measuring its compliance with these targets does not always reflect the true time taken to complete the authorisation process. Witnesses told us that the regulators exclude from their metrics intervals when the regulator or authorised firm is responding to further clarifications or information requests. Caroline Wagstaff told us that “once the clock starts ticking, every time you are asked a question, the clock stops and does not start again until the answer is back.” 140 She added that: “The lived experience is not the 90 days … That could be 90 days stretched over a whole year.” 141 The British Insurance Brokers’ Association told us that, although the FCA’s first secondary objective report claimed that over 98 per cent of authorisation cases were being assessed within statutory deadlines in the final quarter of 2023/2024, 142 the “experience for some firms is that the FCA is falling short.” 143

Witnesses emphasised the delays and frictions firms face due to the slow authorisation of senior managers. The Association of Foreign Banks told us that, in the SM&CR, “authorisation processes are too onerous and frequently still require too long to receive approval, especially compared to other financial centres. This deters foreign banks from recruiting for, and expanding in, the UK.” 144 The Association of Foreign Banks suggested that some international executives were reluctant to locate in the UK due to the SM&CR regime: “Some banks have also voiced that there is reluctance from senior individuals based overseas to take SMF [senior management functions] positions in the UK, again due to the regime’s complexity and disincentives … which reduces the international talent pool available to banks in the UK.” 145

In response to these concerns, witnesses pointed to the approaches taken by other jurisdictions, which maintain accountability whilst permitting greater flexibility. The City of London Corporation told us that the Monetary Authority of Singapore (MAS) introduced the Guidelines on Individual Accountability and Conduct, 146 drawing on the UK’s SM&CR. 147 However, they noted that: “MAS states that financial institutions should not ‘adopt a check-box mentality in applying the guidelines’ but notes financial institutions that choose not to adopt the specific guidance should be prepared to justify their decision and demonstrate how they achieve the relevant outcomes through other means.” 148 Similarly, the City of London Corporation noted the flexibility of the Central Bank of Ireland (CBI), in contrast to the rigidity and complexity of the FCA: “In the UK there are prescriptive reporting requirements with firms required to report annually to the FCA details of conduct rule breaches resulting in disciplinary action. In contrast, the CBI takes a more subjective approach, giving firms flexibility with the requirement being to report issues promptly and appropriately.” 149

Such delays are particularly concerning given the comparative speed at which we were told competing jurisdictions can authorise senior managers. Professor Kern Alexander noted that: “Regarding authorisations, from what I understand from talking to practitioners, approvals of individual appointments take longer in this country in comparison to, say, in Ireland”. 150 The comparative speed of other jurisdictions was emphasised by Miles Celic, who noted that the Chief Executive Officer of the Hong Kong Stock Exchange waited 18 months for UK regulators to approve a representative office compared to weeks in New York. 151 Miles Celic added that: “He had been approached by Dublin, which said, ‘Well, we can offer you a sign-off for a representative office. We can do it in a few weeks, and you’ll have access to the European Union from Dublin as well’.” 152

Witnesses also suggested that slow authorisation processes had contributed to decisions made by firms to locate investments in competing jurisdictions. A notable example of this is the implementation of the Insurance Linked Security (ILS) regime. An ILS is a vehicle to which insurers and reinsurers can transfer risk; the vehicle then issues securities based on this risk, with investors receiving returns in the form of premium payments. 153 This product class was developed by the UK, but due to the UK’s slow authorisation of these products it has lost out on this opportunity to other jurisdictions which now have larger ILS markets. Aon noted: “Singapore copied the UK’s Insurance Linked Security (ILS) regime, … recognising the quality of the UK’s legislation. … Singapore has approved 18 ILS vehicles in a shorter period of time compared to five in the UK. As a result, in 2021 alone we believe that the UK lost out on over US$700 million of foreign investment in ILS to Singapore, because of a more agile and proportionate approach by their regulator.” 154

The efficiency with which the FCA and PRA process authorisations is an important element in the continued growth of the UK financial services sector. Efficient authorisations allow domestic firms to launch new products quickly and international firms to easily locate capital and talent in the UK. Therefore, it is worrying that firms continue to raise concerns about authorisation timescales.

Concerningly, we received evidence that the FCA and PRA are slower to process authorisations than regulators in competing jurisdictions, particularly in key areas such as the authorisation of new products, senior managers, and branches . This has negatively affected the UK’s international competitiveness, resulting in the loss of business and investment.

Whilst the FCA and PRA’s published metrics on authorisation timescales show improvements , witnesses noted that this apparent progress does not reflect the experience of firms due to the exclusion of the intervals when further information is required.

The FCA and PRA must work to reduce authorisation timelines. This should be accompanied by a renewed cultural focus on consistent improvement of operational efficiency across all levels of the organisation.

The Government should review the statutory operating service metrics for the FCA and PRA to ensure they are in line with comparative jurisdictions.

There is an apparent discrepancy between the progress that the FCA and PRA report on the efficiency of authorisations and the experience of firms going through those processes. The FCA and PRA should collect and publish further data in this regard . Regulation providing space for innovation

We received evidence on the importance of innovation as a facet of international competitiveness and a driver of growth in the financial services sector. In particular, innovation is central to the UK’s world-leading fintech sector. Janine Hirt, Chief Executive Officer of Innovate Finance, told us that: “We consistently receive more investment every year in FinTech than any other country in the world bar the United States, and repeatedly receive on an annual basis more investment than nearly all of Europe combined.” 155 However, Janine Hirt added that: “we are at a pivotal moment” where “there is a real risk” of “other regions around the world catching up and a threat of them overtaking us as well in specific arenas”. 156

We received evidence that the regulators themselves cannot drive innovation but can facilitate it by providing the latitude and regulatory frameworks that firms need to innovate. Sandra Boss, Chair of BlackRock UK, told us: “It is important to understand that regulators cannot cause innovation. Regulators should be apprised of innovation and should encourage innovation, but need not impede innovation.” 157 TheCityUK told us that, “Greater pace and a dynamic approach to policymaking, in partnership with industry”, 158 will be required to enable innovation. Authorisations and innovation

Noting that innovation in the financial services sector often requires the implementation of new regulatory frameworks, witnesses told us that the pace at which the FCA and the PRA develop new regimes to leverage growth opportunities is slow, which risks the UK falling behind competing jurisdictions.

A number of witnesses referenced the FCA’s approach to regulating digital assets. Charles McManus, Chief Executive Officer of ClearBank, highlighted that the opportunities offered by fund tokenisation and digitalisation are significant, citing the example of global stablecoin valuations which stood at $650 billion in summer 2024 and are projected to reach $2.2 trillion by 2028. 159 However, we received evidence that there are notable regulatory barriers to the growth of this sector in the UK. The Digital Currencies Governance Group told us that: “The FCA’s approval rate of 13% for cryptoasset firms under the Money Laundering Regulations (MLRs) significantly lags behind international benchmarks, such as the EU’s Markets in Crypto-Assets (MiCA)”. 160

Whilst low authorisation rates for these firms may be indicative of regulatory inefficiency, it is important to note that there is also a lack of a dedicated regulatory regime for digital assets, with these firms instead regulated under general MLRs. This concern was echoed by Innovate Finance, which told us that: “On digital assets, use of blockchain and regulation of crypto currency services, the Government needs to set out clearly the UK’s risk/opportunity approach. The EU has a very clear approach implemented through MiCA; the incoming US administration has also given a clear signal to the market of its support for crypto currencies and digital assets and this is already affecting investment decisions. The UK meanwhile has yet to give a comprehensive statement of direction or position that stands out internationally and provides clarity and confidence for investors.” 161

However, witnesses were clear that the regulators must balance the need to work quickly to leverage new opportunities with adherence to their primary objectives, recognising that innovation can introduce new risks and consumer harms. Witnesses pointed to cryptocurrency as an example of a highly volatile product which presents a material risk of financial harm to consumers who purchase it. Soups Ranjan, Co-Founder and Chief Executive Officer of Sardine, told us: “One method of regulating crypto could be to think of it as any asset that has a lot of volatility. You could think of regulating it like gambling.” 162 Simon Taylor, Head of Strategy and Content at Sardine, praised the FCA’s work to clarify the consumer-facing rules on cryptoassets, telling us that: “the FCA has done a commendable job clarifying the nature of what a crypto asset is for the benefit of the UK population. There has been good work clarifying the online promotions section of the FCA handbook. There is now a register of crypto asset firms held at the FCA.” 163 Enabling innovation

Witnesses also highlighted a range of ways through which the FCA and the PRA could facilitate innovation by creating a regulatory environment that is supportive of new technologies, and in which firms could safely develop new products and approaches.

Several witnesses highlighted the success of the FCA’s Regulatory Sandbox in allowing firms to develop new products in a closely supervised environment and recommended that the FCA build on this success. 164 TheCityUK told us that: “The FCA’s sandbox has been effective to date and they recognise the need to expand the scale of sandboxes”, 165 but added that the Regulatory Sandbox “is now 10 years old and the FCA should work with the industry to develop successor programmes.” 166 Innovate Finance described the Bank of England and the FCA’s joint Digital Securities Sandbox as a “good example of excellent pro-innovation joined up approach”. 167 Innovate Finance praised the approach taken by the Bank of England and the FCA to operating the Digital Securities Sandbox, which it described as allowing: “… the regulators (FCA and Bank of England) to get in the sandbox and experiment with the regulatory rule book—with powers for the regulator to turn regulatory controls on and off. This is genuine collaboration and innovation, which enables the regulatory framework to be tested and developed in real time as new services and products are tested. We would encourage this to become the norm.” 168

Witnesses also commended the Government and the regulators’ approach to the use of AI by authorised firms. Sandra Boss told us: “By taking a principles-based approach it is enabling a rapidly changing area to develop and enabling companies to look for productivity gains.” 169 Nevertheless, some witnesses called for greater certainty over the long-term use of AI in the sector, with Innovate Finance telling us that “there is still some uncertainty in the market.” 170

Several witnesses encouraged the FCA and the PRA to make greater use of regulatory technology, which could help reduce the compliance burden and enhance the monitoring of trends to support supervision. Simon Taylor noted that increased data sharing and standardisation between firms and the regulators would “make a meaningful difference to the issue of APP fraud, mule activity and other activities.” 171 Witnesses suggested that the Government and regulators could provide greater clarity on how firms can utilise new technologies, such as AI, in compliance functions. Soups Ranjan told us that: “it would be helpful if regulators could explain that it is okay for the bank to have AI models that do things like populate a SAR [Suspicious Activity Report] narrative”. 172

The continued development and integration of new technologies, such as digital assets and AI, into the financial services sector may alter how sections of this industry function . We are concerned by evidence to suggest that the UK regulators may not be addressing this as speedily as they should. The FCA and the PRA must do more to facilitate innovation, providing certainty and clarity to empower firms to use AI, or to develop new products and technologies.

The potential for regulatory and supervisory technology to automate compliance and improve the regulators’ ability to fulfil their functions is compelling . The FCA and the PRA must review their operational processes and rule-making functions to explore how they might make better use of regulatory and supervisory technology. Comparison with international regulators: the ‘concierge’ service

Noting concerns about the impact that the UK’s regulatory environment has on the attractiveness of the UK as a place to invest, a number of witnesses referred to what they saw as examples of good practice within other jurisdictions. Chris Hayward, Policy Chairman at the City of London Corporation, referred to “a gold concierge service for inward investment”, and stated that “our competitors, such as Ireland or Paris … do this remarkably well.” 173

Several witnesses highlighted the success of MAS in operating an authorisation process that is responsive to, and supportive of, candidate firms. Sir Nicholas Lyons, Chair of Phoenix Group and former Lord Mayor of the City of London, told us: “Singapore was consistently demonstrating that it was more responsive to inbound [financial services] firms, especially in insurance and reinsurance, basing its competitiveness on its proximity to huge Asian markets.” 174 This was echoed by Charles Randell, who stated: “One aspect of Singapore is that it has a sort of concierge culture. The regulator accompanies firms through the authorisation process and has a developmental objective of growing the Singapore finance industry.” 175

We recognise that there are significant differences between the UK and Singaporean financial and regulatory systems that must be taken into account when making comparisons. However, as Kerstin Mathias, Director of Policy and Innovation at the City of London Corporation, said: “The Singaporean system is very different from the UK’s, and we should acknowledge that. What we can learn from is that it has nailed how to mainstream the innovation and growth mindset across everyone who works at the regulator.” 176

Sir Nicholas Lyons echoed the importance of a more open and flexible supervisory culture in the UK regulators, but cautioned that this should not come at the expense of protections on the UK’s financial services sector: “We should not, however, compromise the integrity of our checks for overseas entities to become UK-regulated in the same way. … I remain unconvinced that any worthwhile entity will favour being authorised in Singapore over the UK, based on a concierge service alone. But, we need to remove the sense that we are unwelcoming to foreign entities per se and have the ability to fast-track firms that are regulated by respected overseas regulators.” 177

In its letter to the Prime Minister, the PRA stated that it could develop a proposal to create “a ‘concierge service’ to help foreign firms navigate the UK when thinking about locating new businesses here” 178 , but noted that it would need to liaise with the FCA and other stakeholders in thinking about how to approach this. 179 Sam Woods also told us that he had visited Singapore to learn how the MAS operates this service. 180 We asked the FCA whether it had spoken with the PRA on this issue. Nikhil Rathi said: “We did. We are talking about it. In my letter, there was a section on improving exports and inward investment, where I talked specifically about working with the Government, the City of London Corporation and other regulatory partners on how we can collectively promote the UK together. Sam used the word ‘concierge’, I think. I did not use that specific word in the letter”. 181

We recognise that there are differences between the regulatory and financial systems in the UK and Singapore, but we consider that there are valuable lessons to learn from Singapore’s approach which could assist foreign firms in navigating the UK when thinking about locating new business here. As set out by the PRA, the FCA and the PRA should work together to develop a proposal for a ‘concierge service’ in the UK, as part of broader efforts to instil a culture based on efficiency and an appropriate degree of flexibility. The quality of supervision

A concern that was raised repeatedly in the evidence that we received related to the quality of supervision, which witnesses connected to the capabilities and experience of supervisory staff. The quality of supervision is central to the predictability of the regulatory regime and can pave the way for the sustained growth of regulated firms. Supervisors monitor risks and can detect incipient problems. Transparent supervisory expectations, which account for a firm’s business model and market sector, can clarify how the rules will be applied and support firms to navigate the regulatory environment.

Witnesses suggested that there were inconsistencies in the quality of supervision and an overdependence on rigid and inefficient supervisory processes, increasing the demands placed on firms. Witnesses told us that the frequent rotation in supervisory teams can disrupt the continuity in the relationships between firms and their supervisors, undermining the predictability needed to invest and grow. A lack of practical experience

The evidence we received indicated some variation in the quality of supervision experienced by industry. The larger firms noted the strong working relationships that they enjoy with experienced supervisors whilst some of the smaller firms expressed significant concerns as to the quality of the supervision that they receive.

Hani Kablawi noted that for BNY, “The PRA has been strong and solid. Its ability to retain people has been good. We build relationships with team members there at different levels of management and supervisory management, and there is continuity.” 182 The discrepancy between the quality and level of supervisory engagement between the largest organisations and the majority of regulated firms was noted by Anna Dunn, Chief Executive Officer for the Commercial and Investment Bank at JP Morgan UK, who told us: “the level of expertise, professionalism and knowledge of our supervisors is very high and compares favourably with other international jurisdictions. … The FCA regulates 42,000 firms. Not all of those 42,000 firms have the degree of interaction that we have.” 183

Whilst it is of vital importance that the firms which pose the greatest systemic risk to the UK financial system are appropriately supervised by knowledgeable and experienced staff, we were told that this concentration of experience has negative implications for the growth of smaller firms, particularly start-ups. Innovate Finance noted that: “The capacity and capability of the regulators are consistently raised as a concern to us by our members”, 184 and stated that: “We need all teams in the regulator, including supervisory and policy teams, to embrace and champion innovation in financial services.” 185

Some witnesses suggested that the experience and capacity of supervisors leads to slow and inefficient approval processes, which may impact on their ability to scale and grow. Witnesses noted that the limited resources allocated to smaller firms have introduced delays to critical supervisory activities. Allica Bank told us that: “many scale-up firms have seen significant delays to the capital review process” 186 and that “this is primarily a function of there being insufficient people in the relevant specialist teams at the PRA to work on these matters.” 187 As part of the capital review process the PRA may apply additional firm-specific capital holding requirements dependent on a firm’s risk profile. 188 Allica Bank noted that delays in the capital review process have contributed to significant uncertainty regarding the bank’s future capital requirements and that: “This degree of capital uncertainty reduces the investor confidence that is required in continuing to supply capital to underpin … SME lending growth.” 189

ClearBank noted that the experience of supervisory staff has created difficulties for the regulators understanding and adapting supervisory processes to account for novel business models: “specifically for Embedded Banking, 190 regulators have struggled to understand how to best [oversee] the model.” 191 Improving the quality of supervision for new business models can provide the clarity firms need to grow, as ClearBank noted: “Regulators devoting the resource to fully embrace newer business models will improve standards of supervision, facilitate growth and help the UK to remain internationally competitive.” 192 Rigid supervisory practices

We received evidence that an overdependence on inflexible supervisory processes increases the burden on firms and reduces the agility of the regulators. Witnesses suggested that adherence to rigid supervisory processes increases the information requests put to firms without necessarily addressing the key risks they face. Christopher J. Lay noted that whilst the capabilities of the supervisors with whom Marsh McLennan UK interacts are strong, 193 staff are bound by rigid processes that have limited supervisory utility: “… by the time it comes to our supervision team its hands are, in a sense, tied, because this is what it has been given to execute. We often find that we are answering questions because they need to be answered, but the outcome that we should be trying to address is a different issue.” 194

Other witnesses complained about the inconsistent quality of supervision and the rigidity in the application of rules, linking the lack of flexibility and agility in the supervisory processes to the prevalence of junior staff in supervisory roles. Lord Blackwell noted: “The size of the supervisory teams and the relatively junior experience of those conducting the day to day interface with financial institutions means that many interactions demonstrate an overly rigid and risk averse application of the detailed rules.” 195 The rotation of supervisors

Several witnesses cited the frequent rotation of staff in supervisory teams as a concern. TheCityUK told us that: “Poor understanding of firms’ business models is exacerbated by regular churn in supervisory teams.” 196 We received evidence that frequent rotation requires firms to invest significant time and resources into rebuilding relationships with their supervisory teams and developing new supervisors’ understanding of a firm’s sector and business model. Cuan Coulter, Executive Vice-President, Global Head of Asset Managers, and Head of UK and Ireland at State Street told us that: “A lot of my administrative time is spent educating field supervisors; that is a reason why there is a lag between intention and execution. … In the field, you spend quite a bit of time educating field supervisors.” 197

We received evidence that frequent personnel changes in a firm’s supervisory team reduce the pace of supervision. Aon told us that: “the high turnover of the FCA means supervisory teams are frequently changing; new supervisors are having to familiarise themselves with their brief quickly, which can lead to a delay in decision-making.” 198 Such delays in decision-making may slow the development of new products, constraining the growth of UK financial services firms. ClearBank told us that: “Well trained, experienced and stable supervisory staff are required to support new and complex products and services. Regulators should implement staff retention schemes to ensure that staff with necessary experience and seniority are available.” 199

Notably, both Aon and ClearBank connected the frequent rotation of supervisors to wider concerns regarding staff retention, particularly at the FCA. Ashley Alder, Chair of the FCA, accepted that staff turnover at the FCA had previously posed a challenge to the consistency of supervision firms received: “One of the issues was the very high level of turnover within the organisation and a programme to grow it and recruit. … When I was interacting with firms at that time—it was 2023—they tended to say that, because of that, they were seeing a degree of churn around which supervisors were allocated to them.” 200

Critically, however, the FCA and PRA provided evidence that retention at both regulators is now strong. The FCA noted that: “Our overall annualised voluntary turnover rate is currently running at 6.2%, which is the lowest since the FCA was established (with the exception of the year of the pandemic lockdowns).” 201 This represents a marked improvement, particularly relative to the FCA’s prior retention challenges. Sam Woods said of staff turnover rates that: “Currently they are at the lowest level they have ever been. The last annualised stat I have is 4.7%. I would like that to be slightly higher.” 202 This low turnover rate is a positive indication that the FCA and PRA are able to retain a pool of experienced policy and supervisory staff.

However, low aggregate turnover does not necessarily guarantee continuity in the important supervisory function. Indeed, David Bailey, Executive Director for Prudential Policy at the PRA, noted that staff rotations are inherent to the PRA’s supervisory approach: “We need the supervisors to turn over on individual firms. We do not need that on a frequent basis, but they need to turn over after some time to prevent them getting too close and to make sure that there is appropriate independence, challenge and fresh thinking.” 203 Rotating supervisors has an important function in preventing regulatory capture, however, this must be balanced against the disruption to firms posed by the frequent rotation of supervisors.

Witnesses suggested that an important constraint on the FCA and PRA employing staff with experience of the sector is the level of remuneration offered, particularly in comparison to pay in the private sector. Noting the difficulty of recruiting and retaining such staff, the Alternative Investment Management Association told us that: “We understand that this is challenging as the FCA does not have the resources to compete with private sector pay.” 204 Moreover, we received evidence that this discrepancy has widened, as Sir Howard Davies told us: “A recent report by New Financial, … says that real pay in the regulators has fallen by 25% in the last decade.” 205 Other witnesses emphasised that matching the pay of regulators more closely to that of industry would require exemptions from public sector pay scales. Andrew Griffith MP told us: “we need to accept that, when you are trying to engage in a symmetrical fashion with very sophisticated financial counterparties, you may sometimes have to step outside the pay bands.” 206

We are concerned by evidence which indicated that there are inconsistencies in the quality of supervision. Firms should expect consistency in the staff that supervise them and supervisors who understand their business.

There is a substantial discrepancy in the quality of supervision received by the largest financial institutions and the rest of the sector. Whilst it is right that the regulators prioritise the supervision of systemically important firms, this must not come at the expense of the support offered to non-systemic firms, which risks harming the ability of small and medium sized firms to grow.

The FCA and PRA must do more to improve supervisory staff’s practical understanding of financial services firms. We recommend that the FCA and PRA explore developing a formal secondment system to both send supervisory staff out to regulated financial services firms, and to bring employees from regulated firms in. We recognise that there are practical issues to consider—regulatory capture must be avoided, and commercial confidentiality must be protected—but appropriate protections could be put in place.

The FCA and PRA should review the compensation they offer to staff with a view to introducing appropriate incentives to help to attract talent with a practitioner’s background in regulated financial services sectors.

The FCA and PRA must review how their supervisory staff are deployed to ensure greater consistency in the staffing of supervisory teams and to address reports of frequent rotation amongst supervisors. A lack of proportionality in regulation and supervision

The evidence we received provided mixed views on the extent to which the FCA and PRA tailor their approach to regulation and supervision to ensure it is proportionate. The requirements placed on firms must account for variations in firm size, sector, and market segment. Proportionate regulation and supervision help to ensure that the rules firms must comply with are relevant to their business model, which can streamline compliance and remove barriers to their ability to grow.

We received evidence that the FCA may not do enough to distinguish between retail and wholesale firms, resulting in it regulating business-to-business transactions, or firms focussed on serving sophisticated or wholesale customers, as though they were retail customers.

We received evidence to suggest that the use of regulatory thresholds is an important part of facilitating proportionate regulation, which exempts smaller firms from certain regulatory regimes. However, we received evidence to suggest that these thresholds had introduced constraints on smaller banks’ ability and willingness to grow, that is they represented ‘cliff edges’, and that more could be done to smooth the introduction of these thresholds. The evidence we received applied to the Bank of England’s use of thresholds, as well as ring-fencing which is set out in statute. Wholesale and retail sectors

The FCA has a broad remit spanning a wide range of retail and wholesale sectors that witnesses suggested has resulted in the over-application of consumer protections to wholesale markets. Retail markets require greater protection for consumers due to discrepancies in the sophistication of the counterparties. As Sir Howard Davies noted: “In wholesale markets, you are aiming to produce a fair contest, whereas in the retail markets you know it is not a fair contest because there is a significant information asymmetry problem between the consumer and the firm.” 207

Witnesses suggested that consumer protection, intended to manage these asymmetries between consumers and firms, has increasingly applied to wholesale markets. Sir Howard Davies told us: “Yes, there has been a bit of a blurring of the line between wholesale and retail in recent years. … You cannot completely back off, because the market does like some rules of the game and it likes to appeal to the regulator when it believes these rules have been contravened blatantly, but there has been some blurring of the objectives.” 208

Aon told us that the application of consumer protections to wholesale markets is unnecessary and burdensome given the sophistication of the counterparties in such markets: “… in wholesale markets—such as the London Market—customers are sophisticated corporate entities with teams of professional advisers. They do not need the same sort of regulatory approach and level of consumer protection as individual retail customers buying products online or on the High Street.” 209

An example of the burdens that firms can incur responding to consumer focussed regulation is the need for firms to demonstrate that their wholesale activities are outside of the scope of consumer regulation. Cuan Coulter told us that: “… our business is almost entirely an institutional business … we, as an organisation, had to spend a significant amount of time—in the order of several thousand man-hours—developing an articulation of why the consumer duty framework did not apply to our business model, notwithstanding the fact that we do not have any retail presence.” 210

The London Market Group noted that Fair Value Assessments apply a similar burden. These are a component of the wider Consumer Duty regulation and require firms to demonstrate that the price consumers pay for products and services is reasonable compared to the benefits they provide. 211 The London Market Group provided the example of a UK-headquartered insurance broker in which “8 of these UK staff are responsible solely for completing Fair Value Assessments, the majority of which are in respect of products provided to corporate clients, not retail customers.” 212 These burdens impose direct staffing costs and may have resultant opportunity costs to firms required to produce these documents unnecessarily.

More broadly, we received evidence that wholesale markets may benefit from a more flexible approach to regulation that recognises the differences in sophistication between retail and wholesale markets. Professor Kern Alexander noted that: “In wholesale markets, we might think about where regulation could be applied more flexibly and which regulations are viewed as onerous or rigidly applied, and maybe about more flexible ways to apply them.” 213

The FCA does not do enough to distinguish between firms that cater to wholesale and retail markets, or market segments in its regulation and supervision. Consequently, this has imposed unnecessary burdens and frictions on firms that could constrain their ability to grow. The use of thresholds

We received evidence that a range of regulatory requirements disproportionately affect smaller and medium sized firms, constraining their growth and limiting the competition between UK financial services firms needed to ensure a dynamic and growing sector. Witnesses cited the extensive use of thresholds, particularly relating to balance sheet size, in determining the application of regulatory regimes. Monzo emphasised the large number of thresholds that impose additional regulatory requirements, placing an effective ceiling on a firm’s growth, by introducing additional costs which these firms cannot shoulder as easily as established firms: “UK challenger banks must negotiate 53 such thresholds as they grow. These thresholds disproportionately impact smaller challenger banks and act as a barrier to growth and investment.” 214

In the evidence that we received the ‘threshold’ cited most frequently by witnesses was the Minimum Requirement for own funds and Eligible Liabilities (MREL), an aspect of the resolution regime that will be addressed in Chapter 3.

We received evidence that the UK’s ring-fencing regime represents a significant threshold for firms to contend with. The UK’s ring-fencing regime is a statutory requirement unique to the UK, introduced after the Global Financial Crisis, that requires firms with a balance sheet over £25 billion to separate their consumer and SME deposit taking arms from their wholesale and investment arms. 215 Sir Howard Davies told us that the process of ring-fencing incurs significant costs: “That was extremely costly to implement. It adds nothing to financial stability and makes UK banks less competitive.” 216 The City of London Corporation echoed this, adding that ring-fenced banks face increased ongoing costs due to regulatory duplication and are at a competitive disadvantage relative to their international competitors: “The ring-fencing framework is unique to the UK and places a burden on firms—other jurisdictions have decided not to use this approach. In particular, there is a burdensome duplication in relation to resolution and operational resilience requirements”. 217

Since the ring-fencing regime and other threshold requirements do not phase in gradually, they represent a ‘cliff edge’ in which firms growing their balance sheets above a specific size are faced by an abrupt increase in their compliance burden. Richard Davies, Chief Executive Officer of Allica Bank, told us that this disincentivises growth above a certain level: “There is a range of aspects that kick in at £10 billion or £15 billion or 40,000 transactional accounts that are very relevant to this as well, which can lead a lot of firms to not want to get beyond a certain size.” 218 This constraint on firms’ appetite to expand their balance sheet beyond certain regulatory thresholds negatively impacts on the growth of these firms and entrenches the position of the largest firms. The concern that the regulators’ reliance on ‘cliff edges’ inhibits a firm’s ability to grow was echoed in a private roundtable with mid-market and specialist banks. 219 It was suggested by Charles McManus that a “sliding scale” be applied to further smooth the transition. 220

We recognise that thresholds represent an essential tool for regulators to differentiate between certain types and sizes of firms and apply specific regulation proportionately. However, we received evidence that such thresholds can constitute ‘cliff edges’ which may hinder smaller firms’ ability to grow. We encourage the Government to work with the Bank of England and FCA to explore how ‘cliff edges ’ might be smoothed. Regulatory uncertainty

We were told that a sense of ‘regulatory uncertainty’ is prevalent across the system. Many witnesses cited this uncertainty as a key barrier to enabling growth and facilitating international competitiveness within the sector.

The interaction between the FCA and the FOS through the consumer redress framework—specifically the tension between the FCA regulations and FOS’s decision processes—was cited as a significant source of this regulatory uncertainty. FOS and the FCA

The FOS is an independent public body set up by Parliament under FSMA 2000 to resolve individual complaints between financial businesses and their customers. 221 It handles approximately 200,000 disputes per year. 222 Consumers can approach the FOS after failing to resolve their complaint with the financial services firm directly. The FOS’s decisions are legally binding on the financial services firm once accepted by the complainant and can only be challenged by the firm via judicial review. 223

Under FSMA 2000, the FOS is required to make decisions based on what it considers “fair and reasonable in all the circumstances of the case”. 224 The FCA’s Dispute Resolution (DISP) rules dictate how firms and the Financial Ombudsman Service handle complaints. Under these rules the ‘fair and reasonable’ test requires the FOS to take into account: “(1) relevant: (a) law and regulations; (b) regulators’ rules, guidance and standards; (c) codes of practice; and (2) (where appropriate) what [it] considers to have been good industry practice at the relevant time.” 225

The FCA and FOS are operationally independent. The FOS’s role is to resolve disputes referred to it. The FCA does not have a role in the FOS’s decision-making, and it cannot direct the FOS to take certain steps. Under the current system, when cases have wider implications, the FCA can provide the FOS with its views on the interpretation of its rules where relevant via the Wider Implications Framework (which was launched in 2022 as a means for certain regulators to work with each other on issues that could have a wider impact across industry 226 ). In addition, FSMA 2023 introduced a duty for the FCA and the FOS to cooperate. 227 However, due to the FOS’s statutory independence, the FCA does not have the power to direct the FOS to uphold a particular interpretation, nor does the FOS have an obligation to consult the FCA. 228

In practice, the application of the fair and reasonable test can mean that the FOS makes judgements that extend beyond, or diverge from, the FCA rules. 229 The FCA’s Handbook also requires regulated firms to ensure that lessons learned as a result of FOS determinations are effectively applied in future complaint handling, which some have described as, in effect, precedent setting, imposing quasi-regulatory obligations on firms. 230 In addition, witnesses told us that the operation of the “fair and reasonable” test also creates the risk that past business practices, although permissible under the FCA rules, may be deemed unfair and subject to redress at a later date.

The City of London Corporation told us that the FOS “now often applies new interpretations of regulations to past conduct, and can make ‘test case’ decisions of wide application.” 231 It stated that: “This has increased the number and complexity of the FOS’s assessments, reducing the FOS’s ability to deliver as effectively as possible for consumers. Some practitioners note that it also means that the FOS judges against standards and requirements that did not exist at the time, which causes uncertainty/deters investors, undermining banks’ ability to support the economy.” 232

The former Economic Secretary to the Treasury and City Minister, Bim Afolami, highlighted the “action, powers and remit of the FOS” 233 as a key area for regulatory change. He said: “We now have a situation where you have a Financial Ombudsman that can make determinations that supersede or change rules that were in place at a time when the FCA had already made rules and there is primary legislation that underpins the secondary legislation under which the FCA makes rules.” 234 Andy Briggs MBE, Chief Executive Officer of Phoenix Group, provided us with an example of this issue in practice: “In 2016, the regulator issued more regulation around reviewable whole of life. The industry therefore took that on board and changed their practices prospectively based on that regulation. We now have a whole host of claims across the industry from, say, a group from 2013. We are looking at the moment at where the FOS is applying the 2016 regulation to communications and business sold in 2013. That is a specific live example.” 235

Compounding the issues set out above in relation to the interaction between the FCA rules and the FOS’s rulings is the impact of what the FCA and FOS describe as ‘mass redress events’ in which large numbers of complaints are filed about the same issue. The FOS states that professional representatives such as claims management companies (CMCs) were behind around 47% of the cases referred to it between April and December 2024. 236 The FOS has also noted that “only 26% of cases brought by professional representatives were found in favour of the consumer, compared to 38% of those brought directly by consumers for free.” 237

Several witnesses suggested that some CMCs are exploiting the disparity between FOS decisions and FCA rules. The Finance & Leasing Association suggested that firms complying with FCA rules can still find themselves embroiled in mass redress events and that this “generates regulatory uncertainty which provides an opportunity for claims management company activity, introduces additional risk to the operation of the market and increases the cost of finance to the end customer—all of which is detrimental to economic growth.” 238

There were concerns that some CMCs are issuing high volumes of complaints which are not properly evidenced or substantiated. The FOS and FCA have said that they are aware of large numbers of “meritless” 239 complaints. Stephen Hadrill, Director General of the Finance & Leasing Association, told us: “… over the last couple of years our industry has seen rafts of claims coming forward, sometimes 10,000 in a week or that sort of number. On the latest estimate we saw, something like a fifth of those came forward without any proper basis at all. The customer had not been consulted by the claims management company. It had just run off a list of PPI claimants in the past and submitted it.” 240

Witnesses also suggested that where a FOS ruling involves historic cases or historic mass redress events, it can become punitively expensive for firms. Witnesses highlighted the fact that the FOS applies eight per cent interest a year to the compensation that firms are required to pay. Stephen Haddrill told us that “if the claim goes back over a considerable period, that boosts it quite significantly.” 241 We note, however, that the eight per cent figure is in line with the current rate on judgement debts, as set by the Lord Chancellor. 242

In an effort to tackle abuses by CMCs, in February 2025 the FOS announced that it would introduce a £250 fee for professional representatives for each case referred above the annual limit of ten free cases, reduced to £75 if the outcome is in the consumer’s favour. 243 This move is aimed at encouraging “professional representatives to submit better-evidenced complaints, considering their merits more diligently before referring them.” 244

We heard that in its current form, the FOS has now significantly evolved from its original purpose of resolving individual disputes and that its involvement in mass redress events means that it is frequently addressing broader sector-wide issues. This has led to concerns that the Ombudsman has inadvertently become a “quasi”, 245 or “de-facto”, 246 regulator.

We agree that the FOS has become a quasi-regulator as its actions have regulatory impacts by creating precedents that the FCA requires firms to follow. The responsibility for issuing binding rules and guidance lies with the FCA. The lack of alignment between the FOS and the FCA generates an unacceptable level of uncertainty for firms, stakeholders, and investors.

Firms should be confident that compliance with regulations and the law will be sufficient to avoid mass redress events, but currently that certainty and predictability is not guaranteed.

The reports of practices by claims management companies who submit large volumes of spurious or meritless claims to firms and the FOS are concerning, causing undesirable outcomes for both consumers and firms. We welcome the introduction by the FOS of fees for claims brought to them by professional representatives. The impact of these reforms must be monitored closely to ensure they have a material impact on poor behaviour by CMCs. FOS and regulatory uncertainty: impact on the secondary objective

There was broad consensus across the evidence that the regulatory uncertainty caused by the way the FOS operates threatens to undermine the aims of the secondary objective. Nationwide Building Society told us that: “Certainty and predictability are crucial enablers of growth and innovation, however the material [uncertainty] caused by the FOS creates uncertainty around regulatory expectations and steers firms towards a zero-risk approach.” 247

A number of witnesses explicitly linked regulatory uncertainty caused by the existing redress framework to impacts on the international competitiveness of the sector. St James’s Place said: “We know that regulatory uncertainty is a central factor raised by overseas investors as to why they are not investing (or investing more) in the UK and in financial services. More specifically, we know of examples where FOS decisions which seem to set new regulatory precedent have even been directly referenced as a cause for concern by overseas investors.” 248 UK Finance suggested: “It is clear that this part of the regulatory system is not functioning as efficiently as it could, creating significant uncertainty in the framework and therefore acting as a drag on the investor appeal for UK financial services.” 249 TheCityUK told us that the “unpredictability of redress requirements (as acknowledged in the Chancellor’s Mansion House speech), is a barrier to investment in UK-based financial services firms.” 250 Bim Afolami suggested that: “This messy situation effectively means there is more of a discount on financial services businesses in the UK; people do not want to invest in the UK because they think, at any given point, the Financial Ombudsman can come and make a determination completely outside what the rules were at any time.” 251 Echoing this point, Andy Briggs told us: “When it comes to overseas capital flowing into the UK, there is something that we could do. Overseas investors, who I talk to regularly, perceive a significant risk premium from regulatory retrospection in the UK, and we need to deal with that. We need to remove the perception, and indeed the reality, of retrospection that goes on where rules change retrospectively.” 252 Action by the regulators and the Government

To address some of these issues, in November 2024, the FOS and FCA published a joint Call for Input, 253 which closed on 30 January 2025. The Call for Input recognises some of the concerns expressed in our evidence over the potential impact of the regulatory uncertainty on growth and competitiveness. It states: “If the UK redress framework does not operate effectively or is seen to be hampering a stable and predictable trading environment, this can potentially affect the FCA’s primary objectives of consumer protection, market integrity and competition, as well as the FCA’s secondary objective to facilitate the international competitiveness of the UK economy in the medium to long term.” 254

The Dispute Resolution (DISP) rules dictating how firms and the Financial Ombudsman Service handle complaints were last reviewed ten years ago. 255 The FCA and FOS acknowledge that: “since then the landscape has changed significantly with several mass redress events and increasing levels of complaints brought by professional representatives.” 256 Several of our witnesses suggested that the FCA should review its dispute rules to address issues such as the precedential value of FOS decisions. 257 The Call for Input indicated that the FOS and FCA were considering amendments to the DISP rules to allow for changes, including allowing the FOS to pause on certain cases to await regulatory input on the interpretation of rules. 258

The need for enhanced input from the FCA on FOS decision-making or ensuring that the FCA can determine how its rules should be interpreted in major cases was echoed by others. UK Finance said: “This should be addressed by, among other things, amending the rules and processes governing the FOS to ensure that the FCA and other relevant bodies are consulted on any significant decisions, to ensure the FOS is interpreting FCA rules in the way the FCA intended.” 259

In response to these concerns, the FCA told us that it is working to review the redress framework in partnership with the FOS, but that “some of this goes back to the choices in the underlying statute and the breadth of discretion—for example, in the case of FOS, around the fair and reasonable test—and other things in the underlying law.” 260 In response to the Committee’s question on whether these reforms would require legislation, Nikhil Rathi told us that there are steps that the FCA can take to “ensure that we can spot issues better and act earlier if we see significant complaints come forward”, 261 but stated: “we have a multilayered system and, of course, the common law is not within our gift. Ultimately, those are all matters for the Government and Parliament.” 262

Emma Reynolds MP, Economic Secretary to the Treasury and City Minister, told us: “we are working at pace on looking at the relationship between the FOS and the FCA and how we ensure that there is more predictability and clearer expectations”, 263 and stated that the Government wants “predictability for firms so that they do not feel that they are being told to do one thing by one part of the system and another by the other.” 264

On 17 March 2025, the Government announced that the Economic Secretary to the Treasury would review the FOS. 265 HM Treasury has stated that this will include addressing concerns around: “The framework in which the FOS operates which has resulted in it acting, at times, as a quasi-regulator”; “whether the FOS is applying today’s standards to actions that have taken place in the past”; and the “practices that have grown up over time on compensation.” 266 HM Treasury has said that the work is expected to conclude by summer 2025 and that the Government “stands ready to legislate in order to ensure that we have a dispute resolution system in the UK which is fit for a modern economy.” 267

The uncertainty caused by the way in which the FOS operates has created a perception of a regulatory ‘risk premium’ or penalty to the valuations of UK financial services firms that can act as a barrier to foreign investment in the UK financial services sector and presents a significant limitation to the advancement of the FCA’s secondary objective. The tension between the FCA regulations and the FOS’s decision processes is a long-standing issue and the need for action to address this and to remove the uncertainty it creates from the regulatory system is long overdue.

The FCA’s and FOS’s response to their joint call for input to modernise the redress system and the Government’s review of the FOS must both result in minimising, if not eliminating entirely, the current uncertainty and unpredictability caused by the FOS’s powers and discretion.

Any reform to the redress framework should be focused on ensuring that the FCA’s and FOS’s views on regulatory requirements are consistent. We believe the following actions should be prioritised: (a) That the FCA is consulted on judgements that are likely to have sector- wide implications. We agree that the FCA should review its DISP rules with a view to enabling the FOS to pause its timescales while it awaits FCA input on the interpretation of its rules and guidance. (b) The precedent-setting effect of FOS decisions should be reviewed, with a view to removing it entirely, particularly for mass redress events whilst retaining the FOS’s original purpose of providing quick and free individual redress. (c) We welcome that the Government has indicated it will consider legislative change if necessary. We stress that the FOS’s remit must be brought closer in line with its original mandate, to provide swift redress rather than examining major complex issues—it cannot continue to function as a quasi-regulator. Consumer Duty

We received a considerable amount of evidence critiquing the FCA’s implementation of the Consumer Duty. The Consumer Duty came into force on 31 July 2023. 268 The FCA stated that a key outcome of it was for “consumers to have confidence in retail financial services markets, with healthy competition based on high standards and firms focused on delivering good customer outcomes.” 269 To implement this, the Consumer Duty requires firms to “act to deliver good outcomes for retail customers”. 270 Amongst other requirements, the FCA stated that management boards are required “to use data to identify, monitor and confirm they are satisfied that their customers’ outcomes are consistent with the Duty” and stated that firms “must act when customers suffer poor outcomes.” 271

However, whilst witnesses supported the underlying objective of the Consumer Duty, they told us that its implementation by the FCA has generated considerable uncertainty. We also heard a range of concerns about the impact of Consumer Duty, specifically that the FCA has provided insufficient clarity around how it expected firms to comply with the Duty, and that it had created duplication and complexity within the framework. Concerns about Consumer Duty

There was some support expressed for the aims of the Consumer Duty. Phoenix Group told us that it was supportive of: “An outcomes-based approach that creates [an] environment for healthy competition and innovation based on high standards of consumer protection and financial sustainability” and that Consumer Duty is “one such example”. 272 StepChange Debt Charity suggested that the Duty “creates the basis for a common language between firms; setting expectations and commitments about good practice and good customer outcomes across the financial services sector.” 273

However, we also heard from a number of witnesses that implementing the Consumer Duty has been difficult due to, as the Investment Association suggested, “the ambiguity of the rules” and the lack of clarity provided by the FCA. The Investment Association told us that obtaining a clear understanding of FCA expectations has been “challenging.” 274 Andrew Griffith MP said: “My issue with the consumer duty is not the unobjectionable desire to protect consumers, but the fact it unleashed into the wild a new duty of care that was not clear, had not been clarified, did not benefit from precedent, and created a vast amount of rework from a regulatory corpus that itself had always had regard to protecting consumers, in some cases overprotecting consumers from themselves.” 275 Caroline Wagstaff told us that the FCA “uses the word ‘consumer’ … but with no definition of what it means by that—all consumers appear to be equal.” 276

We heard from witnesses representing wholesale business and specialist service providers that the Consumer Duty duplicated pre-existing fiduciary duties and other regulatory requirements that govern their relationship with clients. They told us that this introduced either additional compliance, or new requirements to evidence pre-existing duties. State Street told us: “Some market participants (e.g., asset managers) were already subject to comprehensive regulatory requirements that outline their clear fiduciary duties, so it was not only unclear as to why the new framework was necessary but also resulted in significant work to understand and embed the Duty where it applied.” 277 The Lloyd’s Market Association told us: “Much of the specialist and international business written by the London Market is brought into Consumer Duty despite being covered by local consumer protection rules or where customers are advised by brokers acting on their behalf.” 278

We also heard that the Consumer Duty had required some firms to undertake unnecessary compliance activity. Hani Kablawi told us: “We knew from the get-go that we do not have volume in that space. It is a retail activity, and we are not a retail bank, and yet a lot of work had to be done to put in place the structures, the processes and the systems to enable us to support that activity should any volume come our way in the future. That is an example of where regulations can be better scoped and more specific to business models.” 279

Some witnesses told us that the uncertainty around the application of Consumer Duty had driven a risk-averse approach. Monzo told us: “Consumer Duty’s ambiguity drives risk-aversion” and “the lack of clarity around their application is prompting banks and fintechs to become increasingly risk-averse, fearing potential non-compliance.” 280 David Postings also told us that the Consumer Duty had reinforced risk aversion in firms, stating that “authorised push payment fraud and the consumer duty” are “two really significant ones which cause us to have a very risk-averse approach, with a lot of protection for consumers, which can actually end up with consumer detriment.” 281

Some witnesses told us that the subjectivity of the Consumer Duty has made international investors more hesitant to invest into the UK. UK Finance told us that, for the banking sector: “the subjective nature of the Consumer Duty generates uncertainty and creates nervousness for investors.” 282 The Investment Association told us that: “the process of implementing the policy may have damaged the UK’s reputation for competitiveness by creating deep uncertainty about how it would work”. 283

There was also considerable concern expressed around the way in which the Consumer Duty might interact with the FOS’s rulings. The FCA and FOS’s Call for Input on the redress system acknowledged: “A mass redress event could be triggered by differing views of how the FCA rules apply. Moving to outcomesfocused regulation (like the FCA’s Consumer Duty) has many benefits … However, for these benefits to be fully realised, firms and consumers need to be confident that we have a consistent interpretation of regulatory requirements.” 284 Again, we heard that this uncertainty impacted on the attractiveness of the UK as a place to invest. Sir Howard Davies said that the Consumer Duty: “creates extreme nervousness among overseas investors because they do not know quite what it means. … It all seems, in a way, quite sensible when you discuss it with the FCA, but then you have the ombudsman, and the record shows that the ombudsman produces judgments that sometimes go well beyond what the FCA recommended.” 285

The Economic Secretary told the Committee that the Government had engaged with the FCA over some of these issues, and stated that: “On the consumer duty, we have asked the regulator to look at the rule book and see where duplication is. If we are asking firms to focus on outcomes, we cannot have an outcomes approach and a completely prescriptive approach, at the same time. Those two things run in contradiction. So we are asking the regulator, and the regulator is looking at its rule book and at any duplication.” 286

On 29 July 2024, the FCA launched a Call for Input to review how it can simplify its regulatory requirements following the introduction of the Consumer Duty. The FCA stated that it was aimed at identifying where it can refine its retail conduct rules and guidance and address any potential areas of “complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit.” 287 The FCA’s Call for Input closed on 31 October 2024. 288 In March 2025, it published an update on the actions it plans to take in response to the consultation, which included a mortgage rule review. 289 The FCA has said it will set out further actions in September 2025. 290

The FCA’s implementation of the Consumer Duty has introduced considerable uncertainty for domestic and international firms operating in the UK. This uncertainty is driven by a lack of clarity on the FCA’s expectations as to how firms should comply with the Consumer Duty, including which markets and customers it applies to.

Should the FCA fail to address concerns about the Consumer Duty requirements there is a risk that the FOS may inadvertently fill this gap, potentially creating inconsistencies in interpretation of the Duty’s application.

The FOS and the FCA’s review of the redress system must result in clear actions setting out how they will ensure that there is a consistent interpretation of regulatory requirements associated with the Consumer Duty.

We welcome the FCA’s review of its handbook rules following the introduction of the Consumer Duty. However, we also recognise the cost and complexity created by layering new regulation onto similar existing requirements.

It has been almost two years since the Consumer Duty was introduced—the FCA must work at pace to remove redundant or duplicative rules and requirements to provide firms with the certainty and clarity they need to maximise the Duty’s benefits.

Firms have told us that uncertainty around the FCA’s expectations on the Consumer Duty, including over which markets and customers it applies to is causing them to take an overly risk-averse approach to complying with the Duty, adding unnecessary volume to an already high burden of compliance. The FCA must engage with firms to identify the key drivers behind this reaction. It must review the guidance it has provided on the Consumer Duty and identify where further clarification is needed of its expectations on how the Duty should be implemented. Advancing the secondary objective in the financial services sector: our conclusions

The introduction of the secondary objective has increased the regulators’ focus on the impact that their activities have on growth and international competitiveness, but it has also brought into relief long-standing issues that limit or introduce frictions to firms’ ability to grow, innovate , compete, and attract investment.

Cultural change is key, and this must be set from the top. A culture of risk -aversion has led to a proliferation of regulatory activity that is duplicative and complex. We were told that the regulators do not prioritise the requests they make of firms and have overseen a proliferation of the activities they regulate, beyond their core responsibilities. Witnesses suggested that the UK’s regulatory framework is highly complex and that they do not receive enough support to navigate and operate in this environment. Unacceptable levels of uncertainty persist.

Cumulatively, we were told these issues introduce significant frictions for firms, which in aggregate risk constraining growth across the sector. We heard that aspects of the UK’s regulatory regime that are more costly and complex than competing jurisdictions negatively impact on the perceived attractiveness and international competitiveness of the UK as a global financial centre .

Failing to address the issues we have identified in this Chapter risks deepening the perception that there is a regulatory ‘risk premium’ or penalty that reduces the attractiveness of investing in the UK and poses a serious constraint on the advancement of the aims of the secondary objective. 39 Written evidence from OakNorth Bank ( SCG0020 ) 40 Supplementary written evidence from Aberdeen Group ( SCG0068 ) 41 The Rt Hon Rachel Reeves MP, Chancellor of the Exchequer, Mansion House 2024 Speech, 14 November 2024: https://www.gov.uk/government/ speeches/mansion-house-2024-speech [accessed 10 May 2025] 42 Q 330 (Andy Briggs) 43 Q 155 (Charles Randell) 44 Q 298 (Sam Woods). See also Q 240 (Bim Afolami). 45 Q 243 (Andrew Griffith MP) 46 Written evidence from the Lloyd’s Market Association ( SCG0031 ) 47 Q 130 (Nigel Terrington) 48 Financial Services and Markets Act 2000, section 165 49 Written evidence from Nationwide Building Society ( SCG0019 ) 50 Written evidence from Santander UK ( SCG0046 ) 51 See Appendix 4. 52 Ibid. 53 Q 47 (Caroline Wagstaff) 54 Q 271 (Hannah Gurga) 55 Written evidence from Santander UK ( SCG0046 ) 56 Q 254 (Debbie Crosbie) 57 Q 203 (Chris Cummings) 58 Q 328 (Andy Briggs) 59 Q 270 (Hannah Gurga) 60 FCA, Consultation Paper CP23/20: Diversity and inclusion in the financial sector—working together to drive change (25 September 2023): https:// www.fca.org.uk/publication/consultation/cp23-20.pdf [accessed 10 May 2025] 61 PRA, Consultation Paper CP18/23: Diversity and inclusion in PRA-regulated firms ( 25 September 2023 ): https://www.bankofengland .co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2023 /september/cp1823-diversity-and-inclusion-in-pra-regulated-firms.pdf [accessed 10 May 2025] 62 Q 12 (Miles Celic) 63 Q 187 (Sir Howard Davies) 64 Q 279 (Hani Kablawi) 65 Bank of England, ‘Statement on CP18/23—diversity and inclusion in PRA-regulated firms’ (12 March 2025): https://www.bankofengland .co.uk/news/2025/march/statement-on-cp18-23-diversity-and -inclusion-in-pra-regulated-firms [accessed 10 May 2025]; FCA, ‘Update on the FCA’s enforcement transparency proposals’ (12 March 2025): https://www.fca.org.uk/news/statements/update-fca -enforcement-transparency-proposals [accessed 10 May 2025] 66 Q 244 (Andrew Griffith MP) 67 Ibid. 68 Financial Services and Markets Act 2023, section 27 69 Q 342 (Nikhil Rathi) 70 Q 341 (Nikhil Rathi) 71 Q 342 (Nikhil Rathi) 72 Q 292 (Sam Woods) 73 Q 12 (Miles Celic) 74 Q 254 (Julie-Ann Haines) 75 Written evidence from Nationwide Building Society ( SCG0019 ) 76 Supplementary written evidence from the Investment Association ( SCG0058 ) 77 Ibid. 78 See Appendix 5. 79 Written evidence from Nationwide Building Society ( SCG0019 ) 80 Supplementary written evidence from the Investment Association ( SCG0058 ) 81 Written evidence from the Association of British Insurers ( SCG0033 ) 82 Written evidence from the British Private Equity & Venture Capital Association ( SCG0053 ) 83 Q 34 (Christopher J. Lay) 84 Supplementary written evidence from the Investment Association ( SCG0058 ) 85 Written evidence from the London Market Group ( SCG0075 ) 86 Q 102 (Professor Kern Alexander) 87 Supplementary written evidence from the Investment Association ( SCG0058 ) 88 HM Treasury, ‘New approach to ensure regulators and regulation support growth’ (17 March 2025): http://www.gov.uk/government/publications/a-new- approach-to-ensure-regulators-and-regulation-support-growth/new-approach- to-ensure-regulators-and-regulation-support-growth-html [accessed 10 May 2025] 89 Supplementary written evidence from the Investment Association ( SCG0058 ); Written evidence from ClearBank ( SCG0006 ) 90 FCA, Statement of Policy on Cost Benefit Analyses (29 July 2024) p 6: https://www.fca.org.uk/publication/corporate/statement-policy-cba. pdf [accessed 10 May 2025] 91 The Consumer Duty is a cross-cutting regulatory principle that requires firms to ensure products and services provide good outcomes for consumers. See paragraphs 176–192. 92 Written evidence from the Personal Investment Management & Financial Advice Association ( SCG0025 ) 93 Supplementary written evidence from the Investment Association ( SCG0058 ) 94 Q 201 (Chris Cummings) 95 The Cost Benefit Analysis (CBA) Panel is a statutory panel established by FSMA 2023 within the FCA that reviews and advises on the regulator’s use of cost benefit analysis. See FCA, ‘Cost Benefit Analysis Panel’: https://www.fca.org.uk/panels/cost- benefit-analysis-panel [accessed 10 May 2025]. 96 FCA Cost Benefit Analysis Panel, Interim Annual Report: May-September 2024 (10 January 2025) p 20: https://www.fca.org.uk/panels/ cost-benefit-analysis-panel/publication/cba-panel-annual-report-2024. pdf [accessed 10 May 2025] 97 Written evidence from TheCityUK ( SCG0016 ) 98 FCA Cost Benefit Analysis Panel, Interim Annual Report: May-September 2024 (10 January 2025) p 17: https://www. fca.org.uk/panels/cost-benefit-analysis-panel/publication/cba- panel-annual-report-2024.pdf [accessed 10 May 2025] 99 Ibid. 100 Ibid. , p 20 101 Financial Services Regulation Committee, Naming and shaming: how not to regulate (1st Report, Session 2024–25, HL Paper 76) paras 98–108 102 Written evidence from Lloyd’s of London ( SCG0022 ) 103 Written evidence from the Association of British Insurers ( SCG0033 ) 104 Supplementary written evidence from the Investment Association ( SCG0058 ) 105 Written evidence from the Lloyd’s Market Association ( SCG0031 ) 106 Financial Services and Markets Act 2000, sections 1B , 1C , 1D , 1E , 2B , and 2C 107 Regulators that interact with financial services firms include the FCA, PRA, PSR, Financial Reporting Council (FRC), Competition and Markets Authority (CMA), Lending Standards Board (LSB), Information Commissioner’s Office (ICO), and The Pensions Regulator (TPR). See supplementary written evidence from Nationwide Building Society ( SCG0056 ). 108 Supplementary written evidence from Nationwide Building Society ( SCG0056 ) 109 Ibid. 110 Q 202 (Chris Cummings) 111 Q 201 (Chris Cummings) 112 The Senior Managers and Certification Regime (SM&CR) comprises several, mutually reinforcing elements, centred on the Senior Managers Regime, the Certification Regime, and the Conduct Rules. The Senior Managers Regime requires the regulators to authorise individuals to hold certain senior manager functions. The Certification Regime requires the regulators to define certified functions, for which firms must certify staff on appointment and at least every 12 months to ensure that they meet the fit and proper test. See PRA, ‘Discussion Paper DP1/23: Review of the Senior Managers and Certification Regime (SM&CR)’ (30 March 2023): https://www.bankofengland.co.uk/ prudential-regulation/publication/2023/march/review-of-the-senior-managers- and-certification-regime [accessed 11 May 2025]. 113 Written evidence from Lord Blackwell ( SCG0007 ) 114 Written evidence from the Lloyd’s Market Association ( SCG0031 ) 115 HM Treasury, Press Release: Chancellor fires up financial services sector to drive growth on 14 November 2024: https://www.gov.uk/government/news/chancellor-fires- up-financial-services-sector-to-drive-growth [accessed 11 May 2025] 116 Operational resilience regulations ensure that firms can withstand operational shocks such as service outages, cyber-attacks, and the failure of outsourced business functions with the minimum disruption to their commercial activities. See FCA, Policy Statement PS21/3: Building operational resilience—Feedback to CP19/32 and final rules (29 March 2021) p 3: https://www.fca.org.uk/publication/policy/ps21-3- operational-resilience.pdf [accessed 11 May 2025]. 117 Q 282 (Hani Kablawi) 118 Ibid. 119 Written evidence from Principality Building Society ( SCG0060 ) 120 Ibid. 121 Written evidence from Aberdeen Group ( SCG0008 ) 122 Q 353 (Emma Reynolds MP) 123 Written evidence from Phoenix Group ( SCG0042 ) 124 Q 119 (David Postings) 125 The Lending Standards Board (LSB) is the self-regulatory body for the banking and lending industry which sets and oversees a range of consumer standards and codes. See Thomson Reuters Practical Law, ‘Glossary: Lending Standards Board (LSB)’: https://uk.practicallaw. thomsonreuters.com/2-500-6741?transitionType=Default&contextData=(sc.Default)&firstPage=true [accessed 11 May 2025]. 126 Written evidence from Nationwide Building Society ( SCG0019 ) 127 The Joint Regulatory Oversight Committee (JROC) was formed in 2022 and comprised the regulators with responsibility for Open Banking, including the FCA, PSR, and CMA, along with HM Treasury. See FCA and PSR, Joint Regulatory Oversight Committee: Terms of reference (24 June 2022) p 1: https://www. fca.org.uk/publication/corporate/joint-regulatory-oversight-committee-tor. pdf [accessed 11 May 2025]. 128 Open Banking is a system that allows customers to share financial information securely from institutions such as banks and building societies with trusted third parties to facilitate a range of services including tailored financial services and faster account-to-account payments. See HM Treasury, National Payments Vision (14 November 2024) pp 28–29: https://assets. publishing.service.gov.uk/media/6736385fb613efc3f182317a/National_Payments_Vision..pdf [accessed 11 May 2025]. 129 Written evidence from Nationwide Building Society ( SCG0019 ) 130 Written evidence from TrueLayer ( SCG0070 ) 131 Variable Recurring Payments would allow customers to authorise repeated payments at flexible intervals and of varying amounts, facilitating more flexible and efficient billing. See PSR, Expanding variable recurring payments: Response to the call for views (CP23/12) (15 August 2024) p 5: https://www.psr.org.uk/media/tovd1ygd/rp24-1-expanding-vrp -consultation-response-aug-2024-v3.pdf [accessed 11 May 2025]. 132 Written evidence from UK Finance ( SCG0039 ) 133 HM Treasury, National Payments Vision (14 November 2024) p 29: https://assets. publishing.service.gov.uk/media/6736385fb613efc3f182317a/National_Payments_Vision..pdf [accessed 11 May 2025] 134 Ibid. , p 31 135 Q 267 (Debbie Crosbie) 136 Financial Services and Markets Act 2000, sections 19 , 20 , and 23 137 Ibid. , sections 55L and 55M 138 Ibid. , section 61 139 Q 201 (Chris Cummings) 140 Q 34 (Caroline Wagstaff) 141 Ibid. 142 FCA, Secondary International Competitiveness and Growth Objective report 2023/24 (29 July 2024) p 12: https://www.fca.org.uk/publication/corporate /sicgo-report-2023–24.pdf [accessed 10 May 2025] 143 Written evidence from the British Insurance Brokers’ Association ( SCG0011 ) 144 Written evidence from the Association of Foreign Banks ( SCG0026 ) 145 Ibid. 146 Monetary Authority of Singapore, Guidelines on Individual Accountability and Conduct (10 September 2020): https://www.mas.gov.sg/-/media /mas/mpi/guidelines/guidelines-on-individual-accountability-and-conduct.pdf [accessed 5 June 2025] 147 Written evidence from the City of London Corporation ( SCG0043 ). See also Q 278 (Hani Kablawi). 148 Written evidence from the City of London Corporation ( SCG0043 ) 149 Written evidence from the City of London Corporation ( SCG0043 ) 150 Q 101 (Professor Kern Alexander) 151 Q 13 (Miles Celic) 152 Ibid. 153 HM Treasury, Insurance linked securities: Consultation (1 March 2016) pp 3–4: https://assets.publishing.service.gov.uk/ media/5a808dde40f0b62305b8bd3b/Insurance_linked_securities_consultation.pdf [accessed 11 May 2025] 154 Written evidence from Aon ( SCG0030 ) 155 Q 166 (Janine Hirt) 156 Ibid. 157 Q 78 (Sandra Boss) 158 Written evidence from TheCityUK ( SCG0016 ) 159 Q 194 (Charles McManus) 160 Written evidence from the Digital Currencies Governance Group ( SCG0021 ). The EU Markets in Crypto Assets Regulation (MiCA), which entered into force in June 2023, establishes uniform EU market rules for crypto-assets and related services that are not currently regulated by existing EU financial services legislation. See European Securities and Markets Authority (ESMA), Consultation Paper: Technical Standards specifying certain requirements of the Markets in Crypto Assets Regulation (MiCA) (12 July 2023) p 8: https://www.esma.europa.eu/sites /default/files/2023–07/ESMA74-449133380–425_MiCA_Consultation_Paper_1st_package.pdf [accessed 4 June 2025]. 161 Written evidence from Innovate Finance ( SCG0049 ) 162 Q 211 (Soups Ranjan) 163 Q 211 (Simon Taylor) 164 Q 167 (Janine Hirt); Written evidence from Zurich Insurance ( SCG0023 ); Written evidence from the City of London Corporation ( SCG0043 ) 165 Written evidence from TheCityUK ( SCG0016 ) 166 Ibid. 167 Written evidence from Innovate Finance ( SCG0049 ) 168 Ibid. 169 Q 78 (Sandra Boss) 170 Written evidence from Innovate Finance ( SCG0049 ) 171 Q 212 (Simon Taylor) 172 Q 212 (Soups Ranjan) 173 Q 21 (Chris Hayward) 174 Written evidence from Sir Nicholas Lyons ( SCG0067 ) 175 Q 160 (Charles Randell) 176 Q 26 (Kerstin Mathias) 177 Written evidence from Sir Nicholas Lyons ( SCG0067 ) 178 Letter from Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, to the Rt Hon Sir Keir Starmer MP, Prime Minister, the Rt Hon Rachel Reeves MP, Chancellor of the Exchequer, and the Rt Hon Jonathan Reynolds MP, Secretary of State for Business and Trade (15 January 2025) p 5: https://www.bankofengland.co.uk/-/media/boe/files/ prudential-regulation/letter/2025/pra-response-letter-15-january-2025. pdf [accessed 12 May 2025] 179 Ibid. 180 Q 302 (Sam Woods) 181 Q 341 (Nikhil Rathi) 182 Q 280 (Hani Kablawi) 183 Q 280 (Anna Dunn) 184 Written evidence from Innovate Finance ( SCG0049 ) 185 Ibid. 186 Written evidence from Allica Bank ( SCG0052 ) 187 Supplementary written evidence from Allica Bank ( SCG0076 ) 188 PRA, Supervisory Statement SS31/15: The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process ( SREP) (29 July 2015): https://www.bankofengland.co.uk/-/media /boe/files/prudential-regulation/supervisory-statement/2025/ss3115-february-2025 -update.pdf [accessed 12 May 2025] 189 Supplementary written evidence from Allica Bank ( SCG0076 ) 190 Embedded banking is the integration of financial services, such as banking and payment systems, into non-financial platforms. See Bain Capital and Bain & Company, Embedded Finance: What It Takes to Prosper in the New Value Chain (September 2022) p 5: https://www.bain.com/contentassets /a5ad904e61324de88b62707de879f174/bain_brief_embedded-finance.pdf [accessed 12 May 2025]. 191 Written evidence from ClearBank ( SCG0006 ) 192 Ibid. 193 Q 44 (Christopher J. Lay) 194 Ibid. 195 Written evidence from Lord Blackwell ( SCG0007 ) 196 Written evidence from TheCityUK ( SCG0016 ) 197 Q 214 (Cuan Coulter) 198 Written evidence from Aon ( SCG0030 ) 199 Supplementary written evidence from ClearBank ( SCG0059 ) 200 Q 335 (Ashley Alder) 201 Written evidence from the FCA ( SCG0074 ) 202 Q 309 (Sam Woods) 203 Q 309 (David Bailey) 204 Written evidence from the Alternative Investment Management Association ( SCG0015 ) 205 Q 182 (Sir Howard Davies) 206 Q 244 (Andrew Griffith MP) 207 Q 183 (Sir Howard Davies) 208 Ibid. 209 Written evidence from Aon ( SCG0030 ) 210 Q 214 (Cuan Coulter) 211 FCA, ‘Consumer Duty: Findings from our review of fair value frameworks’ (10 May 2023): https:// www.fca.org.uk/publications/good-and-poor-practice/consumer- duty-findings-our-review-fair-value-frameworks [accessed 12 May 2025] 212 Written evidence from the London Market Group ( SCG0075 ) 213 Q 95 (Professor Kern Alexander) 214 Written evidence from Monzo ( SCG0029 ) 215 PRA, Review of ring-fencing rules (25 January 2024) p 7: https://www.bankofengland.co.uk/-/media/boe/ files/prudential-regulation/publication/2024/review-of-ring-fencing-rules. pdf [accessed 12 May 2025] 216 Q 178 (Sir Howard Davies) 217 Written evidence from the City of London Corporation ( SCG0043 ) 218 Q 191 (Richard Davies) 219 See Appendix 5. 220 Q 191 (Charles McManus) 221 Financial Ombudsman Service, Annual report and accounts for the year ended 31 March 2020 (5 November 2020) p 5: https://www.financial-ombudsman.org. uk/files/287580/Annual-Report-and-Accounts-for-the-year- ended-31-March-2020.pdf [accessed 12 May 2025] 222 Financial Ombudsman Service, Policy statement: Charging claims management companies and other professional representatives (7 February 2025) p 3: https://www. financial-ombudsman.org.uk/files/324553/Charging-professional-representatives-Policy- statement.pdf [accessed 12 May 2025] 223 Financial Ombudsman Service, ‘ How we make decisions ’: https://www.financial-ombudsman.org.uk/ who-we-are/make-decisions [accessed 12 May 2025] 224 Financial Services and Markets Act 2000 , section 228 225 FCA, ‘DISP 3.6: Determination by the Ombudsman’, FCA Handbook : https://www. handbook.fca.org.uk/handbook/DISP/3/6.html [accessed 12 May 2025] 226 The members of the Wider Implications Framework are the FCA, FOS, Financial Services Compensation Scheme (FSCS), The Pensions Regulator (TPR), and the Money and Pensions Service (MaPS). See Wider Implications Framework, Annual Report 2022 (19 April 2023) p 3: https://www.financial-ombudsman.org.uk/files/324217/ Wider-Implications-Framework-Annual-Report-2022_ACC.pdf [accessed 12 May 2025]. 227 Financial Services and Markets Act 2000 , section 415C 228 FCA and Financial Ombudsman Service, Call for Input: Modernising the Redress System (15 November 2024) p 23: https:// www.fca.org.uk/publication/call-for-input/call-for- input-modernising-redress-system.pdf [accessed 12 May 2025] 229 The FOS and FCA have themselves recognised this. They have stated: “There is also a risk that the FCA will ultimately move forward with a regulatory solution which is different to the outcome the Financial Ombudsman may have reached on individual complaints. This is anticipated in FSMA and understood by the courts, but it can suggest inconsistency in the system.” See FCA and Financial Ombudsman Service, Call for Input: Modernising the Redress System (15 November 2024) p 12: https://www. fca.org.uk/publication/call-for-input/call-for-input- modernising-redress-system.pdf [accessed 12 May 2025]. 230 UK Finance and White & Case, Review of statutory dispute-resolution processes in the banking and finance sector (16 February 2021) p 2: https://www.ukfinance.org.uk/system/files/Review%20of% 20statutory%20dispute-resolution%20processes%20in%20the%20banking%20-%20FINAL.pdf [accessed 12 May 2025] 231 Written evidence from the City of London Corporation ( SCG0043 ) 232 Ibid. 233 Q 236 (Bim Afolami) 234 Ibid. 235 Q 326 (Andy Briggs) 236 Financial Ombudsman Service, Press Release: Financial Ombudsman Service to start charging professional representatives to refer cases on 7 February 2025: https://www.financial-ombudsman.org. uk/news/financial-ombudsman-service-start-charging-professional-representatives-refer- cases [accessed 12 May 2025] 237 Ibid. 238 Finance & Leasing Association, ‘FLA response to FCA/FOS Call for Input on Modernising the Redress System’ (31 January 2025): https://fla.org. uk/news/fla-response-to-fca-fos-call-for-input- on-modernising-the-redress-system/ [accessed 12 May 2025] 239 FCA and Financial Ombudsman Service, Call for Input: Modernising the Redress System (15 November 2024) p 6: https://www.fca .org.uk/publication/call-for-input/call-for-input-modernising -redress-system.pdf [accessed 12 May 2025] 240 Q 229 (Stephen Haddrill) 241 Q 228 (Stephen Haddrill) 242 Financial Ombudsman Service, ‘Compensation’: https://www.financial-ombudsman.org.uk/consumers/expect /compensation [accessed 13 May 2025] 243 Financial Ombudsman Service, Press Release: Financial Ombudsman Service to start charging professional representatives to refer cases on 7 February 2025: https://www.financial-ombudsman .org.uk/news/financial-ombudsman-service-start-charging-professional-representatives -refer-cases [accessed 12 May 2025] 244 Ibid. 245 Q 254 (Debbie Crosbie) 246 Written evidence from UK Finance ( SCG0039 ) 247 Written evidence from Nationwide Building Society ( SCG0019 ) 248 Written evidence from St. James’s Place ( SCG0037 ) 249 Written evidence from UK Finance ( SCG0039 ) 250 Written evidence from TheCityUK ( SCG0016 ) 251 Q 236 (Bim Afolami) 252 Q 322 (Andy Briggs) 253 FCA and Financial Ombudsman Service, Call for Input: Modernising the Redress System (15 November 2024): https://www.fca.org.uk/publication/call-for-input/ call-for-input-modernising-redress-system.pdf [accessed 13 May 2025] 254 Ibid. , p 5 255 Financial Ombudsman Service, Press Release: Financial Ombudsman Service and FCA move to modernise redress system on 15 November 2024: https://www.financial-ombudsman.org .uk/news/financial-ombudsman-service-fca-move-modernise-redress-system [accessed 13 May 2025] 256 Ibid. 257 Written evidence from UK Finance ( SCG0039 ), the City of London Corporation ( SCG0043 ), and the Finance & Leasing Association ( SCG0048 ) 258 FCA and Financial Ombudsman Service, Call for Input: Modernising the Redress System (15 November 2024) pp 23–24: https://www.fca.org.uk/publication/call -for-input/call-for-input-modernising-redress-system.pdf [accessed 13 May 2025] 259 Written evidence from UK Finance ( SCG0039 ) 260 Q 332 (Nikhil Rathi) 261 Ibid. 262 Ibid. 263 Q 361 (Emma Reynolds MP) 264 Ibid. 265 HM Treasury, ‘New approach to ensure regulators and regulation support growth’ (17 March 2025): http://www.gov.uk/government/publications/a-new -approach-to-ensure-regulators-and-regulation-support-growth/new-approach -to-ensure-regulators-and-regulation-support-growth-html [accessed 13 May 2025] 266 Ibid. 267 Ibid. 268 The Consumer Duty is Principle 12 of the FCA’s high-level Principles for Businesses. See FCA, ‘PRIN 2.1: The Principles’, FCA Handbook : https://www.handbook.fca.org.uk/handbook/PRIN/2/1.html [accessed 4 June 2025]. 269 FCA, ‘Consumer Duty implementation: good practice and areas for improvement’ (20 February 2024): https://www .fca.org.uk/publications/good-and-poor-practice/consumer-duty -implementation-good-practice-and-areas-improvement [accessed 13 May 2025] 270 FCA, Finalised Guidance FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty (27 July 2022) p 24: https://www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf [accessed 13 May 2025] 271 FCA, ‘Consumer Duty implementation: good practice and areas for improvement’ (20 February 2024): https://www .fca.org.uk/publications/good-and-poor-practice/consumer-duty -implementation-good-practice-and-areas-improvement [accessed 13 May 2025] 272 Written evidence from Phoenix Group ( SCG0042 ) 273 Written evidence from StepChange Debt Charity ( SCG0071 ) 274 Written evidence from the Investment Association ( SCG0009 ) 275 Q 242 (Andrew Griffith MP) 276 Q 33 (Caroline Wagstaff) 277 Written evidence from State Street ( SCG0055 ) 278 Written evidence from the Lloyd’s Market Association ( SCG0031 ) 279 Q 277 (Hani Kablawi) 280 Written evidence from Monzo ( SCG0029 ) 281 Q 108 (David Postings) 282 Written evidence from UK Finance ( SCG0039 ) 283 Written evidence from the Investment Association ( SCG0009 ) 284 FCA and Financial Ombudsman Service, Call for Input: Modernising the Redress System (15 November 2024) p 6: https://www.fca.org.uk/publication/call-for-input/call- for-input-modernising-redress-system.pdf [accessed 14 May 2025] 285 Q 178 (Sir Howard Davies) 286 Q 349 (Emma Reynolds MP) 287 FCA, Call for Input: Review of FCA requirements following the introduction of the Consumer Duty (29 July 2024) p 5: ttps://www.fca.org.uk/publication/call- for-input/call-for-input-review-retail-conduct-rules.pdf [accessed 14 May 2025] 288 Ibid. , p 6 289 FCA, Feedback Statement FS25/2: Immediate areas for action and further plans for reviewing FCA requirements following introduction of the Consumer Duty (25 March 2025) p 5: https://www.fca.org.uk /publication/feedback/fs25-2.pdf [accessed 14 May 2025] 290 Ibid . , p 4 < Back Next > © Parliamentary copyright 2025 A-Z index Glossary Contact us Freedom of Information Jobs Using this website Copyright Privacy notice Cookie policy Cookie Manager House of Lords - Growing pains: clarity and culture change required - An examination of the secondary international competitiveness and growth objective - Financial Services Regulation Committee Accessibility Email alerts RSS feeds Contact us Home Parliamentary business MPs, Lords & offices About Parliament Get involved Visiting Education House of Commons House of Lords What's on Bills & legislation Committees Publications & records Parliament TV News Topics Growing pains: clarity and culture change required - An examination of the secondary international competitiveness and growth objective Contents Chapter 3: The secondary objective and the wider economy

The issue of the relationship between banking and the financing of growth in the UK has been a matter of debate since, at least, the identification of the ‘Macmillan gap’ in 1931. The ‘gap’—addressed in one paragraph of the Report by the Committee on Finance and Industry (the Macmillan Committee)—referred to the difficulty that small and medium-sized enterprises (SMEs) face in securing long-term financing. 291 The debate has resurfaced persistently without any definitive policy resolution. 292 A recent report by the Treasury Committee in 2023 concluded that SMEs are struggling with access to finance and “are generally pessimistic about their ability to raise funds”. 293

The sheer persistence of this problem in the face of various government initiatives over the years, suggests that there are significant organisational issues or structural issues or both in UK financial services and the relationship between financial services and the financing of industry. In these circumstances, we are not convinced that such changes in regulation as have been envisaged in evidence to the Committee would, by themselves, bring about reform on the scale required to make a discernible impact on the competitiveness and growth of the economy as a whole.

We received limited evidence on what the FCA and PRA could do to facilitate growth in the wider economy, or what changes could be made to regulation that would impact on investment in the UK economy as a whole. We believe that this is indicative of a gap in the evidence base for policy makers and rule makers around which regulatory mechanisms have a direct impact on growth. This raised questions for us around the extent to which the FCA and PRA can be expected to facilitate economic growth.

Broadly speaking, the financial services sector facilitates economic growth by providing capital, credit, insurance and other services to firms in the ‘real economy’. 294 Much of the evidence we received concerned the operational efficiency of the regulators, as described in Chapter 2. While this relates primarily to the competitiveness of, and growth in, the financial services sector, it also contributes to economic growth as all businesses should benefit indirectly if the financial services sector itself benefits.