Regulators support government growth objective and aim to reduce regulatory burden

Since the general election, the new Labour government has been signalling its intentions for financial services as a key driver of its economic growth agenda and, following the Autumn Budget, HM Treasury launched a call for evidence which outlined the government's plans for its Financial Services Growth & Competitiveness Strategy (Strategy). The Strategy (due to be published in Spring 2025) will set the government's approach to the financial services sector for the next 10 years and will serve as the framework through which the government will deliver sustainable, inclusive growth for the sector and secure the UK's competitiveness as an international financial centre.

The call for evidence sets out five core policy pillars which the government says are central to the sustainable growth of the sector. These are:

• Innovation & technology: enabling and supporting increased digital adoption, including AI, which have the potential to increase productivity and open up new products and services.
• Regulatory environment: ensuring there is a robust and transparent regulatory framework to support growth whilst also maintaining financial stability.
• Regional growth: promoting growth across all regions to ensure the benefits of the UK's financial sector are felt nationwide.
• Skills & access to talent: ensuring a strong pipeline of homegrown talent and that the UK remains an attractive destination for top talent internationally.
• International partnerships & trade: maintaining the UK's success as a global financial hub through strong trade arrangements and international leadership on financial regulation.

The government also highlighted several key priority growth opportunities, including the London insurance and reinsurance markets, and the government has committed to listen to the sector about what it needs to continue to succeed.

In relation to the "regulatory environment" pillar, the government called out several of the FCA and PRA's ongoing workstreams and praised the UK regulators for actively considering ways to help the insurance and reinsurance markets grow and compete. Despite this, the government considers that there is still work to be done to ensure that financial regulation is proportionate and supportive of economic growth in the UK.

One example is the current certification regime under the SM&CR, which the government thinks is overly costly and an administrative burden, and should therefore be replaced with a more proportionate approach. The Chancellor recently confirmed that when the FCA and PRA publish the outcome of their review of SM&CR, this will include a commitment by the regulators to consult on removing the current certification regime from legislation.

FCA response

In a letter addressed to the Prime Minister, Nikhil Rathi (FCA CEO) has now set out the FCA's wider plans to support economic growth in line with the Strategy. In particular, the FCA will look to reduce the regulatory burden on firms by:

• Streamlining the FCA Handbook following input from industry on rules which could be simplified or removed.
• Making the SM&CR more flexible (as noted above, the regulators are likely to consult on removing the current certification regime to reduce cost and administrative burden for firms).
• Removing the need for a Consumer Duty Board Champion now the Duty is in effect.
• Ensuring that future consultations on consumer protection ask if the Consumer Duty is sufficient or whether new rules are required.
• Reviewing the proportionality of reporting requirements and removing redundant returns (initially expected to benefit 16,000 firms).
• Working with the BoE/PRA to reduce reporting requirements more generally.
• Reducing conduct requirements for wholesale insurers.
• Reforming the Consumer Credit Act 1974.
• Simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.
• Consulting on removing maturing interest-only mortgage and other outdated guidance.
• Working with the government to remove overlapping standards, eg the Mortgage Charter.

The letter also says that the FCA could go even further and, with government support, reduce costs of AML measures by relaxing KYC requirements on small transactions.

PRA response

The PRA is also proposing to support the Strategy by:

• Simplifying the prudential regime for small banks.
• Increasing the ability of the insurance sector to invest in the UK economy.
• Improving the UK framework for Insurance Special Purpose Vehicles (ISPVs) including simplifying and accelerating the ISPV authorisation process.
• Making further amendments to remuneration requirements to enhance competitiveness.
• Simplifying regulatory data reporting from banks.

In addition, the PRA would like to explore with the government whether there are wider changes which could support UK growth as follows:

• 'Concierge service' for new inbound foreign firms.
• Rationalising the UK financial services regulators' 'have regards'.
• Looking for potential overlaps between the PRA's governance and disclosure requirements and those of legislation or other relevant regulators.

What's next?

The government's proactive approach to fostering growth in the financial services sector is commendable and, by targeting innovation and regulatory reform, the Strategy sets a robust foundation for economic development. Streamlining current regulatory requirements, eg the SM&CR, and reducing the administrative burden on firms could enhance the UK's attractiveness as a global financial hub. However, any regulatory adjustment must be carefully managed to avoid compromising financial stability and the FCA has already stressed that it will not deregulate where consumers may be at risk.

While the Strategy is promising, its success will depend on effective collaboration between the government, regulators and industry stakeholders. The government's commitment to listening to the sector and adapting policies based on feedback is encouraging but continuous dialogue and a flexible and responsive approach to regulation will be key to achieving sustainable growth and enhanced competitiveness for the UK's financial services sector.