A new report from the House of Lords Financial Services Regulation Committee argues that change is needed to how UK regulators operate, including the FCA and Financial Ombudsman Service.
The Committee says the FCA and the Financial Ombudsman Service (FOS) must set out how they intend to address longstanding concerns with the redress framework and ensure that their views on regulatory requirements are consistent.
The 148-page report outlines a series of issues within the regulatory environment "that are placing an undue constraint on the sector’s ability to grow and attract investment", adding that "the burden of compliance in the UK is perceived to be disproportionately high".
The Committee said: "Firms have told us that they are inundated by information requests from the FCA and PRA and that there has been a significant degree of ‘mission creep’; both regulators appear to have increasingly expanded the range of business activities they regulate, and the Government has continued to add to the requirements placed on them."
Such overlap, the report says, has delayed the implementation of reforms and made it harder for firms to conduct business due to duplicated compliance requirements.
The Committee added: "We heard repeatedly that a sense of ‘uncertainty’ is prevalent throughout the system. The interaction between the FCA and the Financial Ombudsman Service (FOS) through the consumer redress framework — specifically the tension between the FCA rules and the FOS’s decision processes — was cited as a significant source of this regulatory uncertainty."
Firms told the Committee that the regulatory environment is "overly complex" and that many find it challenging to navigate and remain compliant.
The report also pointed to continued delays in authorisation times, which it says is slowing the ability of firms to launch new products and services and risks "placing the UK at a competitive disadvantage relative to jurisdictions that can authorise faster".
Consumer Duty a 'regulatory penalty on investment'
The Parliamentary report added that regulatory uncertainty has created the perception of a "regulatory penalty on investment" in UK businesses, driven by the lack of clarity under the Consumer Duty and the FOS’s "evolution into a quasi-regulator".
It said a failure by the FCA to clarify how firms should comply with the Consumer Duty, including which markets and customers it applies to, has also generated uncertainty for firms.
The Committee said: "Firms should be confident that compliance with the law and a clear body of regulations will be sufficient to avoid mass redress events, but currently that certainty and predictability is not guaranteed.
In conclusion, the report said: "The FCA and PRA’s senior leadership must drive cultural change throughout their organisations. This change should emphasise a more tailored and proportional approach to the risks posed by regulated firms, a culture of continual operational improvement and innovation, and a more transparent and trusting relationship with stakeholders.
"The FOS’s remit must be brought closer in line with its original mandate, to provide swift redress rather than examining major, complex issues — the FOS cannot continue to function as a quasi-regulator."
Stephen Haddrill, director general of the Finance & Leasing Association, said: “The Committee has produced an incisive report that sets out the problematic dynamic between the Financial Conduct Authority and the Financial Ombudsman Service (FOS) with regards to the consumer redress framework.
“Having examined this issue from a competitiveness and growth perspective, their findings add yet more weight to the call for fundamental change on how the FOS operates.”
Elisabeth Bremner, financial services Partner with law firm CMS, commented: “It’s true the Consumer Duty can be more challenging to interpret in less straightforward cases, and the FCA needs to provide firms with more guidance.
“But the Duty is rapidly becoming a punch-bag for critics when no-one can seriously question the overall objective to protect vulnerable consumers. The FOS does need to get back to basics of dealing with individual complaints and not become a quasi-regulator by default.”
