Recommendation 166

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