The Growth and Competitiveness Agenda for FS regulators

February 2025

As UK economic growth continues to be sluggish, pressure is building on financial services (FS) regulators to consider both growth and international competitiveness in their work.

This article looks at the origins of this agenda and the regulators’ reactions to the government’s demands. It also considers whether formal objectives will make a tangible difference, and the extent to which they are part of a wider trend towards deregulation.

The story so far

The Financial Services and Markets Act (FSMA) 2023 gave the PRA and FCA a secondary objective ‘to facilitate the international competitiveness of the UK economy and its medium to long-term growth, subject to aligning with relevant international standards’. The PRA and FCA reported on their progress against the objective in July 2024 and are required to report again in July 2025.

In May 2023, the then government published a paper entitled “Smarter Regulation: Regulating for Growth” on improving “regulation across the board to reduce burdens, push down the cost of living and drive economic growth”.

In May 2024, the Lords Financial Service Regulation Committee launched an inquiry into the FCA and PRA’s secondary competitiveness and growth objective and is likely to report in the next few months.

In her first Mansion House speech in November 2024, the Chancellor set out her view that ‘the UK has been regulating for risk, but not regulating for growth’ and called for action.

The regulators’ responses 

The growth and competitiveness agenda represents a shift in the UK government’s expectations of FS regulators, marking a departure from the post-crisis, risk averse approach of the last 15 years. The government acknowledges that this will be a challenge for regulators whose primary legislative objectives continue to be, for the PRA, financial stability and policyholder protection and, for the FCA, consumer protection, market integrity and promoting competition.

The PRA and FCA have responded to the government’s call for growth proposals in somewhat different ways. The FCA is careful to point out that the shift to prioritising growth and competitiveness may come at the expense of its primary consumer protection objective and that the government and other stakeholders will have to accept that it will need to “take greater risks and rigorously prioritise resources”. Meanwhile, the PRA letter emphasises that all its objectives already support growth, as this is a fundamental component of its financial stability mandate. Although the PRA acknowledges that there is more that can be done, and that it is strongly committed to the new objective, the suggestion is that this will not result in wholesale changes.

Both the FCA and PRA responses set out current and planned initiatives that may support growth, including:

Areas that could be explored with government support include:

Thus, so far, the response from UK regulators seems to be to make regulation more proportionate and less burdensome, by removing overlaps and inconsistencies, rather than ‘ripping up the rulebook’. In a recent interview, Sam Woods, PRA CEO, characterised the PRA’s approach as “clearing away a lot of undergrowth. We’re significantly pruning the trees but we’re not going to set fire to the forest”.

Will it make a difference?

Regulation is not the only way to impact growth and competitiveness. As mentioned above, it is one of five policy pillars in the government’s proposed FS Growth and Competitiveness Strategy, alongside innovation and technology, regional growth, skills and access to talent, and international partnerships and trade.

It is hard to say whether the changes that the regulators are implementing and proposing will make a material difference to the wider economy, or how long that might take. It will be challenging to quantify and attribute any difference, other than via the regulators’ own reports on their progress.

Firms will be excited by certain measures such as the FCA’s proposals to streamline the SM&CR and review its rule book for duplication following the implementation of Consumer Duty requirements. Some would also welcome further changes directly to the Consumer Duty itself because the evidential framework required to prove every good customer outcome can be viewed as disproportionate and disadvantageous from a UK:EU competitiveness perspective.

An area where changes can already be seen is in regulators’ engagement with industry, for example through the deployment of Subject Expert Groups (SEGs). More open discussion and the ability to contribute to policy development prior to formal consultation should lead to more proportionate and responsive regulation.

However, the effectiveness of other measures remains unclear. For instance, it is uncertain whether removing the £100 contactless limit will have any impact on growth. Indeed, none of the measures currently proposed is likely to lead directly to growth, although a reduction in regulatory burden may free up bandwidth and resources.

Taxation is one area that could significantly influence the financial services sector by encouraging growth but, given the government's tight fiscal situation, it is unlikely that proposals to reduce specific financial services taxes, such as the stamp duty on UK shares, will be taken forward at this time.

So, is deregulation the answer? 

The UK is not the only jurisdiction considering the balance of its regulatory framework. The EU is also struggling with stagnant economic growth and has launched various initiatives to address competitiveness, including the recently published Competitiveness Compass and an initial Omnibus Regulation which aims to simplify and consolidate overlapping sustainability reporting obligations, with others expected to follow. There have also been calls for a “Draghi-style report” on the competitiveness of its banking sector. Meanwhile, the new US Administration has instigated a “regulatory freeze” – for more see KPMG US article here.

On the flip side, FS firms are not always happy to see regulation reduced. Deregulation does not necessarily translate to increased competitiveness. Local trends towards deregulation could make regulatory compliance more complex for international firms if authorities move away from international standards.

Reduced consistency and interoperability of local regulations could have knock-on impacts on opportunities for equivalence or deference decisions – which could in fact have an adverse effect on competitiveness. And a reduction in regulation is still regulatory change which may require resources to be deployed for implementation and ongoing monitoring.

Deregulation for deregulation’s sake will not be a silver bullet – however there is a place for targeted actions with clear outcomes for firms.