A report by the House of Lords Financial Services Regulation Committee (FSRC) identified risk-averse practices within supervisory bodies and inefficiencies across the regulatory system as key obstacles limiting the global competitiveness and growth of UK financial services firms.
The committee’s review of the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) pointed to long-standing problems that create barriers for innovation and discourage new entrants.
According to the FSRC, the UK regulatory framework imposes high compliance costs and lacks a clear view of the cumulative effect of various regulations on firms.
The report noted growing uncertainty due to the interpretation of the Consumer Duty and the interaction between the FCA’s rules and the Financial Ombudsman Service (FOS), which is responsible for resolving consumer complaints.
The FSRC said the FOS increasingly assumes a quasi-regulatory role, with companies reporting that the FOS often applies new regulatory interpretations retrospectively.
This trend has expanded the complexity of FOS reviews and limited its ability to resolve complaints efficiently.
The FSRC also identified insufficient proportionality in regulatory supervision, citing the FCA’s failure to differentiate adequately between wholesale and retail markets.
Lord Michael Forsyth of Drumlean, FSRC chair, stated that unclear guidelines under the Consumer Duty, combined with the FOS’s evolving role and general regulatory uncertainty, contribute to the perception that investing in UK businesses carries regulatory penalties.
The lack of clarity under the Consumer Duty and the FOS’s evolution into a quasi-regulator, coupled with regulatory uncertainty, also gives the impression that there is a regulatory penalty on investment in U.K. businesses
Lord Michael Forsyth of Drumlean, chairman of the FSRC
Industry stakeholders endorsed the report’s findings. The Association of British Insurers (ABI) emphasized the importance of proportionate regulation to promote growth and investment.
ABI director of regulation, David Otudeko, stated that excessive regulation has deterred investment and supported the call for a streamlined framework that safeguards customers while encouraging innovation.
In response, the FCA stated that it is simplifying the regulatory process by easing listing requirements, retiring outdated supervisory documents, and reducing data submission burdens on firms.
