UK Economic Growth: A Unified Approach

On 24th December 2024, the UK government distributed a growth remit letter to several key regulators, including the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Payment Systems Regulator (PSR).

The letter was a call to action in support of the Government’s growth strategy. The letter was an extension of the Government’s vision in which Sir Keir Starmer tasked the regulators to respond with ideas for reform that could boost UK economic growth. The letter highlights the importance of collaboration across industries, positioning it as the foundation that champions growth.

First off the mark was David Gaele, the Managing Director of the PSR, who echoed the sentiment in his response to the Chancellor’s Mansion House speech on 14th November 2024 on their website, supporting the need for a trusted world leading payments system delivered on next generation technology. He also highlighted the importance of innovation, security, and competition in the payment ecosystem, aligning closely with the Government’s broader growth mission.

What was the response from key regulators?

Prudential Regulatory Authority

In the weeks that followed, other regulators responded to the Government’s letter. The PRA responded on 15th January 2025, highlighting their support for the Government’s focus on delivering high-rate growth and encouraging responsible risk-taking. The PRA highlighted five key areas of recent action. These include:

1. Implementation of updated banking regulation (Basel 3.1): Updating banking regulations to ensure stability, competitiveness and growth.
2. Solvency UK prudential regime: Introducing a new and simplified prudential regime for insurers.
3. Removal of the bonus cap: Encouraging performance-driven incentives in the banking sector.
4. Review of the senior managers and certification regime (SM&CR): Streamlining governance to enhance efficiency
5. Operational efficiency: Improving the timely handling of authorisation applications

Additionally, the PRA outlined further reforms, including simplifying the prudential regime for small banks, increasing the ability of the insurance sector to invest in the UK economy, improving the UK framework for insurance special purpose vehicles and making amendments to remuneration requirements to enhance competition. The PRA outlined a further three key areas, that they would like to focus on with the UK government, Treasury and the Department of Trade and Industry. These include establishing a concierge service for new inbound foreign firms and identifying potential overlaps between the PRA’s governance and disclosure requirements and those of other existing legislation or relevant regulations.

Financial Conduct Authority

The PRA’s response was shortly followed by a formal letter from the FCA’s Chief Executive, Nikhil Rathi, on 16th January 2025. Mr Rathi’s response welcomed the call from the Government for regulators to collaborate in a fundamentally different way to support their growth mission, a core component of the FCA’s strategy through to 2030. To achieve the necessary deeper reforms, the FCA, much like the PRA, openly embraced the Government’s acceptance of the regulators taking greater risks and rigorously prioritising resources to further increase the likelihood of achieving the required growth. What stood out in the FCA’s response was their willingness to genuinely explore the links between financial regulation and growth by commissioning academic research. This is particularly interesting as it depicts the regulator’s commitment to addressing growth challenges from the ground up.

The FCA outlined some of the reforms already being supported by the Government. These include updating listing rules, boosting investment research, and revolutionising the provision of financial advice, among others. The letter also highlights where the FCA has worked with the PRA around the removal of the bonus cap and proposed pro-competitive changes to the remuneration and SM&CR regimes. In the review of the SM&CR regime, the FCA, together with the PRA and Treasury, will run an exercise to understand stakeholders’ views of the functioning of this regime and look for ways to improve it while preserving the underlying principles of the regulation.

The response goes on further to outline four areas where the FCA has either already planned reforms or is actively working to develop them. These areas include:

1. Unlocking capital investment and liquidity in wholesale markets by streamlining rules and improving access
2. Accelerating digital innovation to enhance productivity,
3. Reducing the regulatory burden on firms by removing unnecessary regulation and returns,
4. Implementing ways of making it easier for firms to start up and grow, improving exports and inward investment and lastly, instilling certainty and predictability to support business and investor confidence.

The FCA provides a consolidated view of the pro-growth work already underway. They had already planned to streamline their handbook following input from the industry on rules that could be removed. The progress made by the FCA in achieving their statutory timelines in the process and speed in which they authorise a firm is played back as a positive achievement with further improvements planned.

Beyond the UK: Growth strategy within the EU borders

Growth is not only on the agenda for the UK. It was a key theme at the World Economic Forum that recently took place in Davos. In recognition of increasing competition and removing red tape that inhibits or detracts from growth, Ursula von der Leyen, President of the European Union (EU), highlighted how the Union will deliver on three key strategies as part of their roadmap (Competition Compass). She proposed that the EU would, namely, increase productivity by closing the innovation gap, creating a joint plan for decarbonisation and competitiveness and overcoming skills and labour shortages. Amongst several strategies that underpin this roadmap, the President highlighted the Union’s desire to cut red tape in a pragmatic and practical approach, reinforcing the need for continental, national and local action. The EU will look to implement a 28th regime which will be a single framework to bring down common regulatory and legal barriers to scaling across Europe.

So what impact will this have on the Asset & Wealth Management industry?

Responses from the regulators and the work already underway drive continued positive sentiment across the industry. Davies anticipates the following impacts:

1. Equilibrium of the pendulum: The pendulum will find equilibrium where there is a greater balance of risk and reward. The regulatory burden should ease, allowing firms increased flexibility to manage their risk while driving rewards. Firms will undoubtedly think about how the changes may allow them to adjust their own internal risk appetites and how resources can be redeployed or redistributed to areas that would support growth.
2. Redeployment of resources: The review of capital investment and liquidity in wholesale markets increases the firm’s ability to redeploy resources resulting in investment in technology and innovation. Firms should be actively thinking about how they can more effectively adopt technology increasing confidence in their ability to remain compliant whilst bringing down the cost.
3. Further amplification of the criticality of data: As the regulators adopt more technology to support their oversight activities, firms will need to build their internal oversight muscle underpinned by robust and readily available data to ensure compliance.
4. Forefront of regulatory change: Horizon scanning will become increasingly important for firms to identify and assess the impact of change and adapt with agility and flexibility to readily seize the opportunities these changes will bring.
5. Deeper levels of two-way communication and broader approach to regulation: As regulators reflect on their respective regimes and identify further pro-growth opportunities, they will increasingly collaborate with businesses to understand the implications of this regulation and adjust their frameworks and approaches based on the practical lived experiences of their regulated firms. Firms will more than likely have increased input and, therefore, influence on how the regulators adjust their reforms and risk appetite in support of the growth agenda.
6. Segmentation: The regulators’ segmented approach will support new and innovative high-growth firms. A question established firms with innovative solutions or new high growth segments will be thinking about is how the benefits of a streamlined regulatory process could be adopted to support their growth and may request further clarity from the regulators.

The collaborative efforts between regulators, the UK government, and their departments are reassuring and encouraging for the asset and wealth management industry. This shift in intent should drive innovation, competition, and the rapid adoption of technology to meet ever-changing client needs. Firms should see added benefits from reduced costs and improved risk management, ultimately bolstering revenue and growth to the benefit of the economy, firms, and the end client.