To deliver on its pledges to reduce compliance costs by 25% and support growth, the government’s upcoming financial services sector plan must focus on delivering a reduction in regulatory drag and a coherent regulatory environment that better recognises interdependencies and aligns oversight.

Drawing on the experiences of its 23,000 members in the financial services sector, ICAEW has been contributing to the development of the government’s plan. The institute has argued that three areas should be tackled as a priority: clarity of regulators’ roles; coordinated data collection and a proportionate approach.

“The UK can retain its place as the destination of choice for global finance, but regulatory overlap and a well-meaning but overly cautious approach risk holding back growth.” says ICAEW Chief Executive, Alan Vallance. “We need a more proportionate and joined-up regulatory approach.”

Clarity of purpose and approach

Front and centre of the government’s plans must be to bring alignment to regulation of financial services, which involves multiple bodies and overlapping requirements. 

Take, for example, the relatively simple industry of payments. Alongside the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the Bank of England and the Payment Systems Regulator are also involved in regulating payments in the UK. A recent statement by the FCA on the different roles and responsibilities of the regulators while offering some clarity, ultimately highlights the complexity of the current situation.

“The volume and overlap of regulation creates unnecessary complexity, driving up costs, causing delays and reducing firms’ productivity. This pushes firms abroad to simpler jurisdictions.” says Reuben Wales, Head of Financial Services at ICAEW. 

Hand in hand with the clarification of regulators’ responsibility is the need to move towards rules that are easy to find, easy to follow and are applied proportionately, based on the likelihood and scale of risks. 

Additionally, ICAEW argues that regulators should adopt a more service-oriented mindset, treating financial services organisations more like ‘customers’ needing support rather than potential wrong doers needing to be constrained. It calls for a reduction in the amount of “soft guidance” – which is overloading organisations – to make regulatory navigation easier for businesses – especially start-ups. 

“Our ask is not lighter touch rulemaking – it’s better, simpler and more proportionate regulation. You can retain high standards without regulation becoming overly complex to navigate,” says Vallance.

Data overload

Alongside clarity of regulators’ roles and the regulations themselves, ICAEW is urging for coordination and simplification of data requirements. Acknowledging the importance of data for informing the regulator – both for supervision and for developing policy – the requirements place a burden on regulated companies, in terms of time and cost.

With multiple regulators present in the financial services space, the same data can be requested by different regulators, with no obvious coordination or clear purpose. Furthermore, once a data requirement is in place, regulators are slow to review and stop collecting data. ICAEW recommends that a sunset clause apply to all data collection requirements. 

“Regulators should review annually whether data is actually being used and whether collection is still required,” says Wales. “The onus should be on the regulator to justify continued collection – with the default position being to cease collection after one year, unless justified.” 

Indeed, one regulator is already taking steps in this direction. The PRA is reviewing its entire approach to data collection as a priority in 2025, with the aim of reducing the reporting burden where possible.

First steps

ICAEW acknowledges the steps taken by the government to acknowledge the vital importance of more effective regulation in recent weeks, including within its infrastructure, trade and industrial strategies, as well as its sector plan for the professional and business services. These are all part of a long-term vision for the UK economy that is helpful in creating a stable investment environment.

Pledges for the City of London to create a “concierge service” to make it easier for international firms to navigate the UK regulatory landscape and by the Regulatory Innovation Office (RIO) to create a “one-stop” digital library of policy and regulations to support the fintech sector are also welcome. 

Wales, says: “We welcome the RIO’s announcement to explore ways to streamline regulation for FinTechs. But we would encourage a review that looks beyond individual rules or regulators and considers the cumulative burden of the broader regulatory environment”

“We’re pleased to see regulatory reform embedded in the industrial strategy as this aligns with what our members believe is needed to support enterprise and drive growth,” adds Vallance. “But the government must now build momentum for regulatory change in its upcoming sector plan to enable the UK to capitalise on its position as a globally respected provider of financial services.”

The government is expected to publish its financial services sector plan on 15 July, to coincide with of Chancellor Rachel Reeve’s Mansion House speech. The speech is also expected to cover a revision to the Mansion House Compact and reform of the ISA system.