Regulatory authorities encourage the establishment of a more flexible regulatory landscape for enhanced responsiveness
The Financial Conduct Authority (FCA) has announced a new role for financial regulation in promoting sustainable, innovation-led growth in the UK's financial services sector. The regulator is positioning itself as a tool to enhance innovation and competitiveness, supporting the government's mission for economic growth.
According to the FCA's new secondary objective, regulation should embed growth considerations into its regulatory DNA. This approach acknowledges that well-calibrated regulation can protect consumers while unleashing the private sector's dynamism to stimulate economic growth.
The FCA has identified three main routes to support growth: enabling financial services to support broader economic growth, improving productivity within financial services firms, and strengthening the sector's competitiveness. One of the key areas of focus is open finance, which involves integrating technologies like AI to ensure sustainable commercial models that align incentives across the open finance ecosystem.
The FCA is also working to create a more agile and effective regulatory environment. This includes building a strong evidence base through research competitions to inform regulatory decisions. The Economic Research Competition, for instance, sought fresh insights into the UK's financial challenges and opportunities, with winners like the University of Birmingham contributing to a more informed debate on economic growth and regulation.
The UK's financial sector, which contributes over 8% of the country's gross domestic product, has undergone transformative changes due to the rise of fintech and cryptocurrency markets. However, high entry costs and burdensome regulations have deterred both domestic and foreign listings in the UK. The Alternative Investment Market relaxation in 2024 is a positive step, but deeper structural issues remain. High-growth firms are increasingly favoring more flexible overseas markets over the UK.
To address these challenges, the FCA can play a vital role in simplifying cross-border investment approvals and improving the environment for international listings. Deeper co-operation between regulators and trade bodies could help amplify the UK's financial services' global brand, particularly in emerging fields.
The UK government has cast economic growth as a national mission, with a focus on evolving financial services to drive sustainable, innovation-led growth. Regulatory clarity and institutional engagement have often fostered innovation in the financial sector. Fintech institutions, for example, may offer better access to credit for consumers, especially low-income households, but they also carry specific tail risks that current regulation has not fully stress tested.
The evolving architecture of financial risk needs to be understood, with a focus on updated, dynamic monitoring tools and a regulatory approach that considers the potential of non-bank financial entities to transmit or amplify shocks. This year's project examines how governments can more effectively allocate public funds to support better fiscal, economic, and societal outcomes.
Subscribing to OMFIF's newsletter provides more information on this topic, as well as collaborations with EY to explore how to improve public finance management. The FCA's new role reflects a shift towards seeing regulation as a growth catalyst, rather than a hindrance, and it is expected to bring about positive changes in the UK's financial services sector.
- The Financial Conduct Authority (FCA) aims to embed growth considerations into its regulatory practices, acknowledging that well-calibrated regulation can protect consumers while encouraging private sector growth.
- One of the FCA's key areas of focus is open finance, which integrates technologies like AI to ensure sustainable commercial models that align incentives across the open finance ecosystem.
- The FCA is working to create a more agile and effective regulatory environment through research competitions, aiming to build a strong evidence base for regulatory decisions.
- The financial sector's contribution to the UK's GDP exceeds 8%, but high entry costs and burdensome regulations have deterred listings in the UK, with high-growth firms increasingly favoring overseas markets.
- To address these challenges, the FCA can play a vital role in simplifying cross-border investment approvals and improving the environment for international listings, amplifying the UK's financial services' global brand.
- The UK government's focus on economic growth includes evolving financial services to drive sustainable, innovation-led growth, with regulatory clarity and institutional engagement often fostering innovation.
- The evolving architecture of financial risk requires updated, dynamic monitoring tools and a regulatory approach that considers the potential of non-bank financial entities to transmit or amplify shocks.
- The FCA's new role reflects a shift towards seeing regulation as a growth catalyst, with a focus on public finance management collaborations with EY to improve fiscal, economic, and societal outcomes.
- Subscribing to OMFIF's newsletter offers more information on this topic, revealing insights into the role of policy, economics, AI, finance, business, and politics in driving sustainable growth in the UK's financial services sector.
