UK overhauls regulation that is ‘too risk averse’

The UK government said the current state of regulation in the country “holds back growth” and has fallen behind other countries as it published an action plan to reform its approach. It has set out changes agreed with 15 regulators, including financial services regulators the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), the Health and Safety Executive (HSE) and the Information Commissioner’s Office (ICO). HM Treasury said the UK’s current regulatory approach is “too risk averse” and should be reformed to support growth, only regulating “where necessary”. “Incentives on politicians and regulators to avoid criticism when regulation fails to fully mitigate risks has encouraged excessive risk aversion in the system,” it said. “Rules-based frameworks can limit regulator discretion, making it difficult to strike the right balance between risk and growth and managing the risk of legal challenge.” Businesses face high administrative costs and disproportionate reporting requirements, listing complexities and duplications in current regulations that are often poorly designed, the government document said. It calculated more than 100 bodies involved in regulation. “The current regulatory landscape is not functioning as effectively as it should. Our system now too often holds back growth and inhibits private sector investment. Whilst countries such as Singapore and Australia have continued to improve their regulatory systems, the UK has fallen behind,” HM Treasury said. “We cannot let this continue. Now is the time for reform: to ensure the UK regains its global competitive leadership. We need to go further and faster to secure and sustain growth, supporting the objectives of our new Industrial Strategy and the wider growth mission,” it stated. Financial services firms welcomed the new approach, which sees the FCA and PRA agree to reduce regulatory reporting requirements. HM Treasury proposed a concierge service to enhance the UK as a global financial services centre, making it easier for firms to navigate barriers to entry and the UK’s regulations. Nafisah Hussain, senior public policy executive at the International Underwriting Association (IUA), representing London company market insurers, said its members’ large corporate clients do not require the same regulatory protection as individual consumers. He added that the IUA is “keen to see how a proposed concierge service will make it easier for new insurers and reinsurers to establish themselves in London”. CEO of the London Market Group (LMG), Caroline Wagstaff, said it has lobbied for a bespoke concierge service. Alongside more efficient regulatory processes, the HM Treasury’s action plan steps “are strong responses to those asks, and critical in helping London remain the global centre for risk transfer”, she said. The FCA has pledged to provide a dedicated case officer to every firm within its regulatory sandbox, as well as increase supervisors dedicated to early and high growth firms by 50%. It further agreed to extend pre-application support to all wholesale payments and crypto firms, and indicated that the FCA is “minded to approve” start-ups to help them secure funding. HM Treasury said it will review whether the Financial Ombudsman Service (FOS) delivers on its role, addressing concerns that it has become a “quasi-regulator”. HM Treasury said it will complete the work by summer and it “stands ready to legislate in order to ensure that we have a dispute resolution system in the UK which is fit for a modern economy”. Turning to HSE, HM Treasury said it will tackle approaches that “unnecessarily limit growth”, identifying where practices can be adapted. This will include HSE and DEFRA consultations on how international approvals can be recognised to reduce the time and cost to bring chemical products, including biocides, to the UK. HM Treasury’s Action Plan Action 1: Reduce complexity and the burden of regulation. The government pledges to cut administrative costs for business by 25% by the end of the Parliament, remove or consolidate regulators and remove duplication across sectors. Action 2: Reduce uncertainty across the regulatory system. Regulators will have a focused set of duties and clear steers, including a strong focus on investment and growth, and publish targets for authorising firms. Action 3: Challenge and shift excessive risk aversion in the system. A whole-of-government approach is needed to ensure regulation strikes the right balance between consumer protection and growth, holding regulators to account and conducting performance reviews.

UK overhauls regulation that is ‘too risk averse’

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