More regulation is not the answer for ‘the crown jewel of the UK economy’

Written by Verity Barton, Associate Director.

The UK Chancellor will have to break Labour’s election promises to achieve economic growth and so she is relying on the Financial Services sector to lead the way in driving innovation, investment, and competition to create her needed progression.

A sensible move considering the sector’s importance to the UK, however, the government’s missive to the Competition and Markets Authority seems counterintuitive, and questions are being raised over whether the Financial Conduct Authority is capable of delivering a regulatory roadmap that supports competition and innovation, and delivers on the Government’s growth objectives?

The current regulatory framework makes the City an attractive, tier-1 global hub, but the FCA’s head, Nikhil Rathi, knows they can’t deliver on the competitiveness and growth objective if the UK’s financial services sector doesn’t tack toward a more laissez faire approach to risk.

But you can’t throw the baby out with the bathwater – hence the tug-o-war battle between the proverbial bull and bear – and there is a key role for the sector in informing and influencing the government and regulators’ approach to this.

So – how does business challenge the government’s thinking and make sure they’re not blocking growth?

Don’t be afraid to talk about risk. Rathi and his team have made clear the FCA does not think that an increased appetite for risk and a strong competitive market that drives economic growth are mutually exclusive.

Shout loud about innovation. Across the economy, businesses are integrating new technologies and innovations to drive productivity and growth. We can create a competitive market and be a standard bearer for consumer protection at the same time – but we need to put innovation and technology at the heart of the conversation.

Be honest about what is an isn’t working. The government and regulators share an ambition with industry: a rulebook that does what it says on the tin. We all want to find that balance between a regulatory framework that maintains the standards of the City’s reputation but doesn’t act as a handbrake on growth. Business can help create that if it puts solutions on the table and engages in a constructive dialogue with policy makers.

Demand accountability to maintain our reptation. We have a world-leading enforcement regime that market participants and consumers both trust. That trust has been hard earned, and business cannot afford to let bad actors squander it. You can’t increase appetite for risk and simplify the rulebook without establishing a benchmark for good behaviour. Industry must lead from the front and demand a culture of accountability.

The bull and bear will tug back and forth, but if we don’t want the rope to snap, industry must be at the forefront of the change the sector needs to unleash innovation, untap capital and drive growth – not bind it up in regulatory red tape.