The House of Lords (HoL) Financial Services Regulation Committee has called for a regulatory ‘culture change’ to reduce burden and uncertainty for regulators, firms, and consumers.

In its report Growing pains: clarity and culture change required, the committee said that the Financial Conduct Authority (FCA) and Prudential Regulation Authority’s (PRA) secondary international competitiveness and growth objective was being hindered by risk aversion, regulatory uncertainty, and inefficiency in the regulatory system.

The objective, which was introduced by the Financial Services and Markets Act 2023, had highlighted long-standing issues that limit or introduce frictions to firms’ ability to grow, innovate, and compete, according to the report.

The committee warned that the burden of compliance in the UK was viewed as disproportionately high and that the regulators did not have a ‘clear understanding’ of the cumulative regulatory burden on firms.

It urged regulators to drive cultural change through the introduction of a more personalised and proportionate approach to the risks posed by regulated firms, improvements to operations and the promotion of innovation, and a more transparent and trusting relationship with stakeholders.

Furthermore, it called for clarity on guidance on the implementation of the Consumer Duty, and on how the FCA and Financial Ombudsman Service (FOS) plan to address concerns with the redress framework, and for the delivery of the Advice/Guidance Boundary Review to be prioritised.

The government was encouraged to assess the financial services landscape to identify regulatory overlaps, provide parameters and direction to the regulators on how it sees financial services regulation supporting its growth strategy, and commission an independent study to understand the cumulative cost of compliance in the financial services sector.

Commenting on the report, HoL Financial Services Regulation Committee chair, Lord Michael Forsyth, said: “The deeply entrenched culture of risk aversion and the high cost of compliance are among the regulatory barriers that are unnecessarily constraining firms.

"These barriers are getting in the way of doing what these firms do best, which is competing, innovating and growing.

“The lack of clarity under the Consumer Duty and the FOS's evolution into a quasi-regulator, coupled with regulatory uncertainty, also gives the impression that there is a regulatory penalty on investment in UK businesses.

“The UK’s financial and insurance services sector contributes over £200bn to our economy, so its continued success is vital for the UK’s economic prospects.

“Regulators need to address barriers and do more to remove, or mitigate at the very least, anything that makes the UK a less attractive place to do business.”

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