'Govt's growth and dynamic regulation ambition is at odds with itself'

The Edinburgh reforms then followed on December 9 2022, covering an ambitious set of 30 policy initiatives designed to create an open, sustainable and technologically advanced financial services sector in the UK.

The Edinburgh reforms are part of the government's post-Brexit plans (building on the new Financial Services and Markets Act 2023, which achieved Royal Assent on June 29) to scrap EU-retained laws for new laws designed for the UK.

Some of the measures announced cover reforming the ring-fencing regime for banks, consulting on Consumer Credit Act reform and a commitment to implement Solvency II reforms.

The new rules and policy initiatives are intended to change the UK's regulatory architecture and empower the regulators to drive competition and growth.

New initiatives are focused on areas of financial services that are either particularly burdensome or where competition and innovation could be supported.

At the same time as promoting growth and competition, the reforms intend for a financial services sector that profits from dynamic and proportionate regulation providing consumers with high-quality services and appropriate consumer protection. 

There is a question mark over how the consumer duty fits in with the government's aim to have proportionate regulation promoting competition and growth.

This is a noble and ambitious goal, but it is one that seems at odds with itself, particularly when looking at the most pressing regulatory change on the horizon, the "consumer duty". 

The consumer duty comes into force on July 31 2023 and will affect all retail financial services markets.

The new framework represents a step forward, "a paradigm shift" (in the words of the regulator) in regulation for sectors such as insurance, consumer credit and lending and payment services.  

After years of significant and highly prescriptive regulation in the financial services market, the new consumer duty revives a principles-based and outcome-focused approach that has required, and will continue to require, regulated firms to dedicate substantial resources, time and funds towards preparing for compliance. 

Given that the UK already has one of the most detailed and prescriptive regulatory frameworks in the world, there is a question mark over how the consumer duty fits in with the government's aim to have proportionate regulation promoting competition and growth.

From a proportionality perspective, the Financial Conduct Authority says the new framework will lead to it being able to simplify some of the complexities in its rule book and seemingly provide a long-term reduction in prescriptive regulation. 

Whether this happens in practice remains to be seen, but any let-up from the regulators releasing new guidance and rules where they feel it appropriate to do so seems unlikely.

Only last week, the FCA released specific guidance and new rules for the insurance market on how it should be dealing with customers in financial difficulty.

This type of guidance is clearly well-intentioned and likely to be welcomed by consumers, but also it demonstrates the FCA's willingness to continue with prescriptive regulation.

For the time being, a lengthy set of policy initiatives requiring potentially significant operational changes may not be the most appealing advertisement for businesses considering expansions or entering into the UK market. 

Instead, the financial services market may be wishing for certainty and stability and some time back to focus on driving business and growth rather than operationalising more regulatory initiatives.

Whitney Simpson, of counsel, Jonathan Charwat, senior associate, and Matthew Griffith, partner and head of the financial services team, at RPC