Committee report finds competitiveness and growth objective failures

A report from the House of Lords Financial Services Regulation Committee has concluded that the FCA and PRA’s secondary international competitiveness and growth objective is being held back by a culture of risk aversion, regulatory uncertainty and inefficiency.

The inquiry found that the competitiveness and growth objective highlights long-standing issues that are limiting or introducing unnecessary frictions to firms’ ability to grow, innovate and compete, discouraging both domestic and foreign entrants to the market. The report identified that the burden of compliance in the UK is perceived to be disproportionately high, and that the regulators do not have a comprehensive understanding of the cumulative burden of regulation on financial services firms.

Other findings included lack of proportionality in approach, for example in the FCA’s failure to sufficiently distinguish between wholesale and retail markets, or the PRA’s approach to capital requirements, and that regulatory uncertainty around the interpretation of the Consumer Duty, and the interaction between FCA rules and the FOS’s decision processes, reduce the attractiveness of investing in the UK.

Overall, the Committee calls for the regulators to:

• Drive cultural change, introducing a more tailored and proportional approach to the risks posed by firms, a culture of continual operational improvement and innovation, and a more transparent and trusting relationship with stakeholders;
• Create a joint cost of compliance working group in conjunction with their respective CBA panels and include an assessment of actual costs of large-scale regulatory reforms as part of their post-implementation reviews;
• Clarify guidance on the implementation of the Consumer Duty and set out how the FCA and the FOS intend to address long-standing concerns with the redress framework; and
• Prioritise the delivery of the Advice Guidance Boundary Review to give UK consumers more support to save and invest.

The Committee has also made requests of the Government, including to undertake a focused assessment of the financial services landscape to identify where regulatory overlap can be eliminated.