LMG welcomes proposals for regulators to be given outcome-based growth metrics

By Rebecca Delaney

June 13 - (The Insurer) - The London Market Group (LMG) has welcomed a House of Lords Financial Services Regulation Committee report on the new secondary growth and competitiveness objective, which outlined continued concerns around a "culture of risk aversion".

The report, published on Friday, said the secondary objective had prompted regulators to focus on the impact of their activities on growth and international competitiveness within the financial services sector.

However, the report also outlined several regulatory barriers that continue to negatively affect the perceived attractiveness of the UK as a global financial centre, including risk aversion.

"This culture, driven by the repercussions of the Global Financial Crisis and the conflicting pressures under which the regulators operate, is deeply entrenched and, if left unchanged, risks further undermining levels of trust between the regulators and industry," said the report.

"We were disappointed by the difference in candour between the evidence we received from industry in public and the views expressed in private. Cultural change must come from the top."

Other longstanding issues identified in the report include a "disproportionately high" burden of compliance, alongside a significant degree of "mission creep" as both the Financial Conduct Authority and the Prudential Regulation Authority appear to have expanded the range of business activities that they regulate.

"The FCA does not do enough to distinguish between firms that cater to wholesale and retail markets in its regulation and supervision which, again, imposes unnecessary burdens and frictions on firms," said the report.

"These issues have fuelled an increase in bureaucracy and imposed significant monetary and resource demands on firms. The regulators do not have a clear understanding of the cumulative burden of regulation; they must work with their respective cost benefit analysis panels to develop a rigorous approach to assessing the cumulative burden of compliance."

The committee recommended that the UK government commission an independent study to assess the cumulative cost of compliance in the financial services sector relative to that in other international jurisdictions.

Caroline Wagstaff, CEO of the LMG, said this recommendation was "very welcome".

"Our members have for a long time highlighted the cumulative burden of regulation, so the recommendation of an independent study to assess the cost of compliance relative to other international jurisdictions is very welcome. Businesses have choices about where they put capital and people, and understanding of relative costs is critical," she said.

Wagstaff continued: "The LMG has been a long-standing advocate for metrics and measurement. The committee’s recommendation that HM Treasury introduce outcome-based growth metrics is very welcome. Equally important is more transparency on reporting by the regulators and a review of their statutory operating metrics."

The report concluded that the UK government must keep the secondary objective under review, and report to parliament and the committee to demonstrate how the objective has facilitated growth in the wider economy on an annual basis.