City regulators’ growth mandate ‘pointless’ without major reform
The “entrenched culture of risk aversion” at the City’s two flagship regulators has stymied meaningful progress on their mandates to aid economic growth, a House of Lords report has argued, despite persistent pressure from Westminster for them to boost UK competitiveness.
In a withering assessment of the efforts made by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) to meet their new objectives, a Lords committee that scrutinises financial regulation called on senior officials to “drive cultural change throughout their organisations” to meet the government’s call to arms.
“The [FCA and PRA] do not have a clear understanding of the cumulative burden of regulation,” the report, titled ‘Growing Pains: clarity and culture change required’, said. “This prevents them from recognising and addressing the negative impact that their activities have on the growth and international competitiveness of the sector.”
Regulators were first given their growth mandate in 2023 under the Financial Services and Markets Act, but has come under especially sharp focus under the current Labour administration.
Labour’s regulator growth push
On Christmas Eve, the Chancellor, Prime Minister and business secretary Jonathan Reynolds wrote to all of Britain’s main watchdogs, demanding they assemble a list of ways that they could help boost competitiveness.
“Improving regulation in the UK – ensuring that it enables growth and does not unduly hold back investment – is an essential part of this government’s growth mission,” the ministers wrote.
Friday’s report from the Financial and Services Regulation Committee hailed the principle of the secondary objective – and the fresh focus placed on it by central government – as a “valuable stimulus for regulators to increase their focus… on growth”. But authors warned it had also “brought into stark relief” long-running issues and frictions that obstructed investment and efficiency.
The onerous reporting burden on lenders and duplicative red tape across watchdogs were highlighted by peers as especially prohibitive to regulated firms’ efficiency and dynamism. The report singled out the load placed on Nationwide, which last year alone received over 4,000 pieces of direct correspondence from its regulators.
This put the UK at a competitive disadvantage with other competing jurisdictions, where authors found filings and compliance to be significantly less “burdensome”.
Committee chair Lord Forsyth said the barriers imposed by regulators were “unnecessarily constraining firms”, preventing them from “doing what [they] do best.
“The UK’s financial and insurance services sector contributes over £200bn to our economy, so it’s continued success is vital for the UK’s economic prospects,” he added. “Regulators need to address barriers and do more to remove, or mitigate at the very least, anything that makes the UK a less attractive place to do business.”
A spokesman for the FCA said the watchdog was “fully committed to supporting” growth in both the financial services sector and the economy as a whole.
He added: “We have put growth at the heart of our five-year strategy, set out a vision for more informed risk-taking, a debate we have spearheaded over recent years… We agree that there is more to do to understand the role of regulation in unlocking growth in the wider economy and that’s why we have commissioned research on this topic.”
A spokesman for the PRA, the regulatory arm of the Bank of England that polices the UK’s lending and credit system, said: “We agree that it is vital that we support the UK’s growth.
“That is why we have already been working hard to embed the secondary competitiveness and growth objective throughout our organisation, whilst recognising that there cannot be sustainable growth without financial stability.”