FS unchained: easing the UK regulatory burden
December 2024 | FEATURE | BANKING & FINANCE
Financier Worldwide Magazine
December 2024 Issue
The UK financial services (FS) sector is dynamic and highly competitive. It is a sector awash with opportunities for innovation and growth, but one also burdened (many say overburdened) with a stream of rules and regulations.
Such is the extent of the regulatory onslaught, leaders of many FS firms believe they will struggle to keep pace, with many indicating they are not at all prepared for upcoming regulations.
Testifying to this lack of preparation is Mayer Brown’s August 2024 report ‘The Next Organization: Seven Dimensions of Successful Business Transformation’, which reveals that 78 percent of FS leaders expect “burdensome regulation” to be the most significant force shaping the FS market landscape over the next three years.
The report also found that over 70 percent of FS leaders believe their organisation will only achieve future growth if they can anticipate new legislation and adapt quickly to regulatory changes.
Among the raft of new regulations to have arrived on the UK FS scene in recent years is the Consumer Duty rules which set a high standard of consumer protection. The scope of the Consumer Duty was extended to closed products and services at the end of July 2024, by which time firms were expected to have produced their first board reports assessing implementation of the legislation.
Another set of regulations widely acknowledged to be posing a challenge for FS firms is the Payments Systems Regulator’s new mandatory reimbursement requirements for authorised push payment fraud and scams, which payment service providers were required to comply with by 7 October 2024.
“The market for FS today is highly competitive,” says Jeff Taft, a partner and co-leader of financial services at Mayer Brown. “For those looking to differentiate their products and services from that of their competitors, an understanding of the rapidly changing regulatory environment can provide them with a first-mover advantage.
“Such is the extent of the regulatory onslaught, leaders of many FS firms believe they will struggle to keep pace, with many indicating they are not at all prepared for upcoming regulations.”
“However, an unwillingness or inability to act in times of regulatory uncertainty or to embrace change may result in missed opportunities for accelerating growth and transforming the business,” he continues. “As a consequence, the interplay between regulation, finance and growth is crucial.”
Reducing regulatory burdens
In an attempt, the Financial Conduct Authority (FCA) has a number of measures in place designed to streamline the rules governing the UK FS sector, including a Regulatory Initiatives Grid and a new competitiveness objective.
First published in 2020, the Grid sets out a regulatory pipeline so that the FS sector and other stakeholders can understand – and plan for – the timing of initiatives that may have a significant impact on their operations.
“There is always a lot of regulatory changes to manage and the most comprehensive source of information for FS firms is the Regulatory Initiatives Grid,” acknowledges Andy Donald, director of communications at UK Finance. “The Grid is designed to give FS firms information so they can understand and plan for changes that will have an impact on them.”
Another, more recent move by the FCA is the introduction of its ‘secondary international competitiveness and growth objective’. This initiative aims to reduce the complexity of the regulator’s rulebook, which could lower costs for FS firms, encourage innovation and help support the risk appetite needed to support growth.
“The regulatory environment has a major impact on UK competitiveness and it is important to fully embed the regulators’ new secondary competitiveness objective,” affirms Mr Donald. “This includes key areas such as the implementation of rules on bank capital, as well as ensuring that new regulations support growth and innovation. As well as in the UK, we also need to look at how regulations operate in other countries.”
Poised for growth
As the UK’s most successful international export and the world’s top net exporter of FS, the UK FS sector needs to prioritise both event-driven and existing regulations to capitalise on untapped opportunities for growth and prepare itself for what the regulatory landscape has to offer in 2025.
Supporting these aims is the 2024 UK Finance report ‘Building a Better Society: A financial services manifesto for the UK’, which outlines the key priorities it believes the UK government should be focusing on. These include a more pro-growth approach to regulation, taking advantage of the UK’s freedoms outside the European Union, and clarity over how regulations apply to technologies such as artificial intelligence, so that they can safely enhance the UK economy and financial system.
“In our recently published manifesto we call on the UK government to augment the new secondary competitiveness objective by creating a new government competitiveness champion,” says Mr Donald. “This champion should have a mandate to fully review and tackle the burden of regulation and ensure we are identifying and dismantling barriers to a thriving FS sector and supporting UK competitiveness.”
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Fraser Tennant