On 13 June 2025, the House of Lords Financial Services Regulation Committee (the Committee) published its report on the secondary international competitiveness and growth objective for the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) (the Report). Taking stock almost two years after the secondary objective entered into force in August 2023, the Report sets out the Committee’s assessment of the current position and outlines its recommendations to the regulators and the government to maintain the attractiveness of the UK as a place for investment and to ensure that the regulators can facilitate growth in the wider economy.

Key criticisms in the Report include:

• an overly risk-averse culture at the UK regulators;
• disproportionate capital requirements and compliance burdens (the latter of which are poorly understood by the FCA and PRA);
• operational inefficiency; and
• a lack of certainty and predictability of regulatory requirements (specifically in respect of the consumer duty and the tension between FCA regulations and Financial Ombudsman Service (FOS) decisions).

The Report also stresses the need for meaningful metrics to assess the performance of the regulators against their secondary objective, including benchmarking against international peers. However, the Committee recognises that the regulators alone cannot effect growth and that a joined-up approach between stakeholders is needed to address the current complexities and to promote the goals pursued by the secondary objective.

The wider context

The Committee’s inquiry was first launched in May 2024 and the regulators and the government have not been idle in this time. Many of the issues identified in the Report will be familiar to those who have followed the recent output by the authorities on enhancements to the UK regulatory framework. This includes the government’s March 2025 Action Plan (which we previously commented on in this blog post), and we took stock more broadly earlier this year on the UK’s vision on ‘regulating for growth’ for financial services in 2025 and beyond.

While work is therefore underway in many of the areas highlighted by the Committee, the Report’s findings make clear the scale of the task which still lies ahead. Challenges will arise in particular in relation to the Committee’s call for a top-down cultural shift on the regulators’ risk-taking approach, which will likely be more difficult to implement than more concrete regulatory reforms.

Some clarity on the government’s views on the Report and its recommendations may be available soon. It is planning to publish its Financial Services Growth and Competitiveness Strategy at the Chancellor’s Mansion House speech on 15 July 2025, which will likely address some of the areas of concern highlighted by the Committee.

Next steps: evidencing progress

The Report calls on the FCA and the PRA to report to the Committee within 12 months on how they have implemented the Committee’s recommendations. It also calls on the government to report to Parliament and the Committee within 12 months (and later on an annual basis) to provide evidence as to whether the secondary objective has facilitated growth in the wider economy, and to keep the secondary objective under review.

The Report’s key findings

The Report divides the Committee’s findings and recommendations into three areas.

Financial services sector: regulatory frictions affect growth

The Committee found that the secondary objective has prompted greater focus by the regulators on the impact of their actions on growth and international competitiveness in the financial services sector, but it has also exposed long-standing issues that ‘limit or introduce frictions to firms’ ability to grow, innovate, compete, and attract investment’. The Committee’s specific findings are as follows:

• Excessive risk aversion: The Report concludes that the regulators’ culture remains shaped by the repercussions of the global financial crisis and is overly risk-averse. This has led to duplicative and complex regulatory activity, and ‘unacceptable levels of uncertainty persist’.
• Compliance burden disproportionate and poorly understood: The cumulative compliance burden on firms is seen as disproportionately high, due to significant reporting and information requirements but also factors such as the expanding range of business activities regulated by the FCA and the PRA. The Committee found that there is duplication and overlap between different UK regulators (causing additional friction) and the regulators do not always have an accurate understanding of the implications of regulatory requirements. The Report recommends that the regulators take steps to improve their cost benefit analysis. The Committee also recommends that the government should commission an independent study to assess cumulative compliance costs against other jurisdictions.
• Operational inefficiency: Issues such as the persistently slow speed of authorisations are judged to place regulatory constraints on innovation. The Report calls on the FCA and the PRA to introduce a renewed cultural focus on consistent efficiency improvements and work to reduce authorisation timelines, and the regulators and the government should ensure sufficient metrics and data collection.
• Learning from global peers: The Report notes that the UK regulators can learn valuable lessons from authorisation processes in other jurisdictions (in particular Singapore) which are ‘responsive to, and supportive of, candidate firms’. The Report recommends that as part of a broader move towards a culture of efficiency and appropriate flexibility, the FCA and the PRA work together on a proposal for a ‘concierge service’ which could help foreign firms in navigating the UK when considering locating new business here.
• Supervision should improve in quality and consistency: The Committee found that firms (particularly smaller firms) experience issues with quality of supervision, such as inconsistencies in quality and frequent changes in supervisory teams.
• Proportionality lacking: The Report notes that a lack of proportionality in regulation and supervision is causing unnecessary friction. For example, the Committee received evidence that the FCA does not do enough to distinguish sufficiently between firms that cater to wholesale and retail markets.
• Regulatory uncertainty: The tension between FCA regulations and FOS decisions is seen as a key source of uncertainty. The Report finds that the FOS has become a quasi-regulator, as its decisions can create precedents which the FCA requires firms to follow. The Committee recommends that the FOS’s remit should be brought closer to its original purpose of providing quick and free individual redress, and consistency between the FCA’s and FOS’s views on regulatory requirements should be ensured. A further source of uncertainty highlighted by the Committee is the consumer duty, due to a lack of clarity on the FCA’s expectations, which has caused firms to take an overly risk-averse approach to compliance with the duty. Such uncertainty can create barriers to innovation, and the Report calls on the FCA and the PRA to do more to facilitate innovation, providing certainty and clarity to empower firms to use AI or to develop new products and technologies.

Wider economy: Actions recommended to support lending and investment

The Committee received limited evidence on how the FCA and PRA could facilitate growth in the wider economy, which they see as indicating a gap in the evidence base. Specifically:

• Capital requirements under the spotlight: The Report notes that requirements for regulatory capital and Minimum Requirements for Own Funds and Eligible Liabilities (MREL) lack proportionality. The Committee recommends that the cumulative impact of such requirements on lenders be reviewed, and the PRA should consider whether it is appropriate to apply the Basel Framework to all UK domestic lenders.
• Unlocking productive investment: A large proportion of domestic savings and wealth is held in cash and physical assets, which the Committee found is caused by the lack of an equity investment culture, difficulties in obtaining financial advice and low levels of financial literacy. It recommends that this is addressed to support productive investment.

The role of the government: how government can support the regulators’ work

The Report makes a number of comments on the Committee’s view of the role of the government:

• Improved metrics: Metrics currently focus on operational efficiencies of the regulators. The Report calls on HM Treasury to introduce outcomes-based secondary objective metrics on the impact of the regulators’ action on the economy, and collaborate with the regulators to assess how their performance can be measured against international counterparts.
• Government directions on risk appetite: The FCA has called for explicit direction from the government on the risk-appetite acceptable in pursuing growth and international competitiveness. The Committee notes that the government should convert general ambitions on enabling informed and responsible risk-taking into more actionable policies, drawing a link between desired economic outcomes, levers available to the regulators and political cover for reforms. The regulators should then take responsibility for ensuring that their policy and supervision adequately assess risk while supporting a stable regulatory environment that facilitates growth and innovation.

• Simplifying requirements on the regulators: The regulators are subject to a large number of regulatory objectives and principles as well as multiple ‘have regards’, which add complexity and potential delays to regulatory processes. The Report states that these should be rationalised as far as possible.

Alignment between authorities

The Report’s findings are in many ways consistent with areas of the UK regulatory framework which the government, the FCA and the PRA have already identified as requiring improvement.

The government’s March 2025 Action Plan acknowledges that ‘the current regulatory landscape is not functioning as effectively as it should,’ holding back growth and inhibiting private sector investment. Many of the areas highlighted as requiring reform mirrored those identified by the Report, and the Action Plan also confirmed that the role of the FOS will be assessed and that the government will review the FCA’s and PRA’s ‘have regards’ with a view to rationalising them.

On the regulators’ side, the FCA’s 2025 strategy for the next five years notes its intention to be a ‘predictable, purposeful and proportionate regulator’ and that its priorities include adopting a more flexible approach to supervision and making data requests of firms more proportionate (see our previous blog post for more detail).

The PRA’s 2024 report on the secondary objective also addresses the need for effective and efficient regulatory processes and notes the PRA’s ability to contribute to economic productivity by ‘facilitating the efficient allocation of capital by PRA-regulated firms.’ The PRA acknowledges that it will need to strike a careful balance – in a speech published on 18 June 2025, the PRA’s Executive Director of Prudential Policy, David Bailey, noted that regulation can foster innovation if it provides both sufficient flexibility and the necessary certainty for firms to invest with confidence.

In addition to these forward-looking priorities, existing initiatives on areas addressed by the Report are numerous, many of which are referred to in the Report. They include the abolition of the Payment Systems Regulator, the FCA’s initiative to improve the complexity of its rules and guidance following the introduction of the Consumer Duty, the PRA’s ‘strong and simple’ prudential framework for smaller banks and building societies, and the FCA and FOS’ plans to modernise the redress system.

Further work is needed and challenges remain

While acknowledging the work which is underway, the Committee feels that insufficient progress has been made so far and has criticised delays to the regulators’ initiatives in the Report. The Committee has made clear that it will be looking for substantive efforts by the regulators to address its concerns.

Significant questions remain as to exactly how the regulators and the government can implement the Committee’s recommendations.

1. How should cultural change to reduce regulatory risk aversion be effected?

The Report acknowledges that the regulators’ risk-averse culture has been reinforced by ‘conflicting pressures faced by the regulators from the government, Parliament, industry, consumers, and the media’, such as the allocation of blame to regulators where regulatory risks crystallise and calls for additional regulation when real or perceived harm is found. To ensure an effective change to regulators’ approach to risk-taking, a broader change in attitudes may be needed, which it will be difficult to regulate for.

2. How can performance be effectively measured – both the impact of the regulators’ actions on the economy and their performance as against counterparts in other jurisdictions?

This will be key to assessing the regulators’ performance against the secondary objective, but poses practical and conceptual challenges, as we have previously considered in our report with TheCityUK on this topic.

3. To what extent should the government be expected to give guidance and provide parameters to the (independent) regulators on what it means to facilitate growth and international competitiveness?

 The Report recognises that the regulators are tasked with regulating for growth, but that this is dependent on economic policy set by the government. The Report also recognises that regulation alone cannot generate economic growth. A careful balance will be required to ensure that the regulators are given sufficient parameters by the government and Parliament, to which they are ultimately accountable, to be able to regulate effectively, without impacting the effective division of their responsibilities.

Final thoughts

What is encouraging is that the regulators, the government and the Committee broadly seem to be aligned on the key areas of focus to ensure the effective advancement of the secondary objective. But what remains to be seen is how far they agree on the details of how to address them.