Select committee: Financial Services Regulation Committee

Conclusion 166

2nd Report - Growing pains: clarity and culture change required - An examination of the secondary international competitiveness and growth objective Published 13 Jun 2025

Financial Services Regulation Committee FCA and PRA’s secondary competitiveness and growth objective All items in this report Report on parliament.uk ↗ Inquiry on parliament.uk ↗

Conclusion (the committee's words)

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

From: Financial Services Regulation Committee, 2nd Report - Growing pains: clarity and culture change required - An examination of the secondary international competitiveness and growth objective, 13 June 2025

Government response

The government responded to the whole report on 3 September 2025 (deadline 3 September 2025).

Summary written by Accountability Index from the government's response. It is not the government's own words.

The government says there is "strong alignment" between the Committee's recommendations and its July 2025 Financial Services Growth and Competitiveness Strategy, agreeing with many recommendations while declining some, including a new compliance cost study and a review of the secondary objective metrics.

On compliance costs (Recommendation 1), the government agrees burdens should be proportionate but "does not intend to commission a new study" "at this time", to avoid duplicating its baselining exercise; it will consider next steps once that work is complete.
On secondary objective metrics (Recommendation 11), the government "does not plan to undertake a further review at this time", citing the granularity of the existing metrics, but says it will continue to monitor the regulators' progress.
On regulatory overlap (Recommendation 2), the government will "consult on the detail" of consolidating the PSR within the FCA and legislate "as soon as possible", but says it would not be "practical or proportionate" to review all financial services legislation and regulator rules in detail.
On reporting to the Committee (Recommendation 15), the government says it cannot "commit to producing specific research" but will provide an update on its work to the Committee within twelve months.

Read the government's response ↗ Report an error