House of Lords committee publishes report on barriers to growth and competitiveness

The House of Lords Financial Services Regulation Committee (the Committee) has published a report, alongside a press release, evaluating the progress made by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in supporting growth in the financial services sector and the wider UK economy. The Financial Services and Markets Act 2023 introduced a secondary objective for the regulators focused on international competitiveness and growth. While the Committee acknowledges that this objective has encouraged regulators to consider the broader impact of their actions, it also finds a prevailing culture of risk aversion by the regulators which undermines the objective. It states this contributes to persistent barriers that limit firms' ability to grow, innovate and compete.

Some of the key points in the report are set out below.

• The Committee doubts the regulators fully understand the link between financial regulation and wider economic growth, nor the cumulative burden of regulation on firms. It supports the UK Government's commitment to simplify the regime and recommends a targeted review to remove regulatory overlap.

• Despite commitments to improve authorisation times, significant delays remain, slowing down firms' launching new products and services. The Committee calls for greater transparency in reporting timelines, including 'stop the clock' practices, and a review of the FCA and PRA statutory service metrics.
• There is ongoing uncertainty due to tensions between FCA rules and the Financial Ombudsman Service (FOS) decisions, particularly within the consumer redress framework. The FCA has also reportedly failed to provide sufficient clarity on how licenced firms should comply with the consumer duty. The Committee urges both bodies to clarify their roles and supports legislative reform to return the FOS to its original remit of providing swift redress, rather than acting as a 'quasi-regulator'.
• The PRA's approach to capital requirements is seen as limiting incentives and restricting the availability of finance for growth. The Committee recommends a review of the cumulative impact of capital, and minimum requirement for own funds and eligible liabilities rules on lending, with a view to balancing financial stability and economic growth.
• The UK Government must strengthen financial education from an early age, and the FCA should expand consumer support initiatives. The Committee criticises the FCA's five-year delay in addressing the financial advice gap and calls for urgent action.
• The Committee finds that the UK Government, FCA and PRA have not given sufficient attention to how financial regulation affects broader economic growth. It urges the UK Government to provide clearer direction to regulators and provide political leadership to define desired outcomes and the regulatory actions needed to achieve them.

Following publication of the report, the FCA published a statement reaffirming its commitment to supporting economic growth as part of its five-year strategy and confirming that it will carefully consider the Committee's recommendations.