A culture of risk aversion and mission creep among UK financial regulators is undermining trust and placing costly burdens on banks and insurers, an influential group of parliamentarians found.
The House of Lords Financial Services Regulation Committee said officials need to clip the wings of the Financial Ombudsman Service, whose awards for motor finance claims have been so large foreign firms fear there is a “regulatory penalty attached to investing in the UK.”
The findings from lawmakers in Parliament’s upper house were published Friday in a report on the secondary growth and competitiveness objective that the government has given the Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority.
Michael Forsyth, chair of the Lords committee, warned of a “disproportionately high cost of compliance” caused in part by overlapping remits between regulators. Reporting requirements are “more burdensome than in competing jurisdictions,” damaging the UK’s attractiveness as a financial center, the report added. “Culture change is required.”
“Throughout the evidence we received, there was a clear link made between the current regulatory culture characterized by risk aversion and its impact on the advancement of the secondary objective.” Forsyth said the UK compared unfavorably with Singapore and Ireland.
Britain’s Labour government is urging regulators, in finance and elsewhere, to simplify rules to make it easier for the private sector to grow. Chancellor of the Exchequer Rachel Reeves has told banks she is “open-minded” to their pleas for the ring fence that protects UK retail bank customers to be removed.
Effective Regulation
Both the FCA and the PRA are in the process of amending rules to roll back what the committee called “mission creep” into areas “outside their core responsibilities,” but Forsyth insisted the goal was not to deregulate.
“It’s not about deregulation, it’s about effective regulation,” he told Bloomberg. “Proportionate regulation does not equate to deregulation.” He said speed and clarity in decision making by regulators were important.
