Before the election, Rachel Reeves said she would “unashamedly champion” financial services “as one of the UK’s greatest assets”.
This was music to the ears of our sector and the early signs in government have been positive. The question now is: what will this mean in practice? What is the Chancellor’s vision for financial services that she will outline at Mansion House this week?
I hope she is bold and uses the opportunity to assess the UK’s overall approach to regulation and risk.
The way financial services are regulated is generally far removed from the lives of most people. It does however have a real impact on the UK’s attractiveness as an investment destination and on the products and services firms offer in the market. It is in all our interests to get the right approach and help support investment and economic growth.
Since the financial crisis, there has understandably been a move to reduce, or even eliminate, risks for consumers and small and medium enterprises. The UK has often gone beyond other countries – for example through the ringfencing regime, the Consumer Duty or our approach to authorised push payment fraud reimbursement. It is right that we have protections in place, and these are all well-intentioned, but cumulatively they have eroded the UK’s international competitiveness.
Firms who wish to operate here have to comply with an increasingly complex and costly rulebook compared to other competing financial centres. As a result, some firms have decided to withdraw products or restrict them to certain customer groups. This leaves consumers with less choice and increases the chances of financial exclusion.
When we talk about regulation, it is easy to think that the UK has just two financial services regulators: the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). But the reality is more complex and includes the Payment Systems Regulator (PSR), the Competition and Markets Authority (CMA) and the Financial Ombudsman Service (FOS) among others.
The impact of this is twofold. First, there are areas where remits overlap and second, taken as a whole, international competitiveness and growth are not sufficiently addressed.
Take the FOS. It plays a valuable role for many consumers by allowing them to have their complaints independently adjudicated. But the decisions it makes have the potential to cut across the remits and rules of other regulators, most notably the FCA.
And no single body looks at the overall approach to regulation. Getting the best from our regulatory framework should therefore involve the appointment of a government competitiveness champion.
Such an appointment could augment the secondary competitiveness objective as well as the new regulatory remit letters. These letters are important and should set an overarching vision based on stability and certainty, and put a far greater emphasis on growth and competitiveness over the long term.
Finally, the Chancellor needs to address the fact that we have collectively become too cautious.
I often see the fear of getting things wrong driving caution at all levels of a firm. That is understandable, as nobody wants to be on the hook for honest mistakes, but it also means we have seen a reduction in risk appetite across the industry.
I am not advocating a dramatic shift in approach, but an adjustment towards equilibrium between risk and protection that allows the sector to refocus on key activities, including innovative product development and growth, to the benefit of customers and the UK economy more widely.
The recent changes made to the UK’s listing regime are an example of where we are striking a good balance between risk and investor protection to help encourage growth. This took real thought and courage on behalf of the regulator.
Ultimately this is a whole system issue which will require a coordinated approach between government, regulators and industry.
It has been extremely welcome to hear Nikhil Rathi and Sam Woods both speak so thoughtfully about how they see regulation and risk co-existing.
When the Chancellor speaks, I hope she is able to set in train a political and regulatory environment that is proportionate, allows appropriate risk taking, and has competitiveness and growth at its heart.