Our regulators can protect high standards and deliver strong competition in the UK
The UK’s banking and finance markets are fiercely competitive, with firms fighting for business and customers every single day. At the same time, the UK competes with financial centres around the world to secure business and attract new investment and talent.
Late last year, the Treasury set out a range of proposals to help ensure the UK is “the most open, the most competitive and the most innovative place to do financial services anywhere in the world.”
One of the hotly debated proposals is to give the main financial services regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), new secondary objectives to support growth and international competitiveness. We firmly support this proposal, which is something Lord Hill recommended in his report on improving the UK’s listings regime. But not everyone agrees. Some have argued it would lead to lower regulatory standards. I believe they have got this wrong.
Crucially, the competitiveness objective would be secondary to the PRA’s and FCA’s existing primary objectives of promoting competition while ensuring the safety of the financial system and protecting consumers. These will rightly continue to take precedence.
However, where regulators are considering alternative courses of action that would meet their primary objectives, it is equally right that they should choose the one that they judge best promotes growth and international competitiveness.
Such an approach would bring the UK’s approach into line with other jurisdictions. For instance, the EU’s supervisory authorities are already required to take due account of the impact of their activities on its global competitiveness. And growth and competitiveness are active considerations for financial services regulators in financial hubs such as Singapore and Hong Kong.
Looking at things through a competitiveness lens will be particularly important as regulators undertake the process of transferring EU regulatory requirements into their own rules. This process should focus on simplifying and tailoring standards, not watering them down. A strong and effective regulatory framework is one of the UK’s great strengths.
The competitiveness of the sector is an important issue not just in London but also in the many other parts of the UK that are home to significant numbers of financial services jobs. Speaking at our annual dinner, John Glen highlighted the sector’s vital importance as an employer up and down the country. He was clear in his aim to look at how our regulators make decisions in a way that “avoids politicisation and posturing”. For him, casting the decision of regulators as one between high standards and greater competitiveness was a “false choice”.
The Treasury has rightly noted that financial services “is not just an industry in its own right but an engine of growth for the wider economy.”
The UK is clearly a world-leading financial centre, but we cannot afford to rest on our laurels. We know other countries are always looking for an opportunity to divert business away and secure new investment that might otherwise flow into the UK.
Ensuring regulators take account of international competitiveness would not only bolster the UK financial services sector as it competes on the global stage, but support its position as one of the country’s most important employers and sources of tax revenue.