City regulators must work more constructively with businesses, experts say
City regulators have been urged to work more constructively with businesses to ease compliance costs, experts have said amid plans for major regulatory reform by the government.
Regulators such as the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) were frequently too slow to respond to messages from businesses and were often deliberately vague in their requests, some argued, leading to unnecessary spend on legal and consultancy fees to interpret their communication.
“The authorisation process [with regulators] takes ages,” one former regulator said.
“When I was there, if I wanted a firm to do something, I wouldn’t be very clear initially – I’d say it in a very wooly way.
“And then, when I was a consultant, I would get paid money to interpret a letter from the PRA because it was so unclear.
“You often have to wait for at least three letters before the regulator says ‘this is what I want you to do and when you have to do it.”
The remarks were made as part of a roundtable discussion with financial experts on the subject of Labour’s plan for regulatory reform and whether they were welcomed by the City.
The roundtable was chaired by CityAM and hosted by workspace company Argyll at their premier City office location on 1 Cornhill, and featured senior members of banks, insurance firms, economists, consumer groups and regulatory experts.
Participants took part in the discussion under Chatham House rules, allowing CityAM to report on the meeting without attribution to specific individuals.
The discussion follows the publication of the government’s regulatory action plan, dubbed the “new approach” to ensure regulators and regulation support growth.
The plan, which was published in March, called for the UK’s regulatory system to be more transparent, predictable, proportionate and to be better aligned with the government’s growth mission.
“Regulation can be too complex and duplicative, stifling progress and innovation,” the report said.
“Over the past few decades, an excess of poorly designed regulations has resulted in unnecessarily complex and burdensome requirements for businesses and investors.
“Even if all these regulations had been optimally designed, their sheer cumulative impact – and the associated increase in regulatory activity – has produced an additional layer of burden which adds to this complexity.”
In January the government has sent a “clear message” to UK regulators by ousting the chair of the competition watchdog, in what lawyers described as the “most overtly political” regulatory intervention of recent years.
There were differences of opinion on the roundtable as to whether the burden of regulations was holding back growth, or whether some financial services firms were taking an overly cautious approach beyond the requirements of regulations.
Consumer protection versus risk tolerance
“Regulation has shifted to being too heavily focused on consumer protection and risk aversion,” one participant said.
“And as a consequence of that risk has effectively been squeezed out of the system. And ultimately, if you have no risk, you have no growth. And that’s exactly where we’ve ended up.”
But an ex-regulator replied: “There are a few major economies that have tougher regulation on a number of fronts but continue to be more productive, more innovative…so the ideal that regulation is stifling innovation is not there in the evidence.”
Some also argued that maintaining regulatory alignment with European peers would be the best way to reduce the regulatory burden for British financial services businesses, as any material divergence with Europe would incur additional compliance costs.
“Growth has to be a driver of the government’s agenda – but it doesn’t have to be reduced to a simplistic distinction of either growth or consumer protection,” one participant said.
“Having a regulatory system that is looking from the perspective of how companies can grow, does lead to change.”