Regulatory authorities encourage greater flexibility in regulatory systems for improved adaptability
The Financial Conduct Authority (FCA) has emphasised the crucial role of financial regulation in driving sustainable, innovation-led growth in the UK economy. By fostering competitiveness, supporting new technology adoption, and enhancing the financial sector’s capacity to back wider economic growth, regulation can play a pivotal part in shaping market behaviour and encouraging investment into productive and high-growth areas.
Encouraging Growth through Regulation
The FCA's new secondary objective is a call to action, embedding growth considerations into the regulatory DNA to reshape financial services as a catalyst of long-term, inclusive, and internationally competitive growth. This strategic approach is highlighted in the FCA's recent economic research competition, which underlines the idea that well-calibrated regulation can protect consumers while unleashing private sector dynamism, contributing to productivity, resilience, and inclusiveness in the economy.
Key points from the FCA economic research competition and related initiatives include:
- The FCA's role has evolved to include a secondary objective focused on supporting the UK’s international competitiveness and growth, particularly in financial services, which are a major contributor to GDP and employment.
- Research funded by the competition, such as the University of Birmingham’s study, demonstrates the importance of regulation in understanding and supporting the financial needs of growing firms, specifically comparing markets like AIM and the Main Market on the London Stock Exchange.
- Regulation is increasingly designed to be agile and innovation-friendly, helping fintech developments, cryptocurrencies, and open finance ecosystems to flourish through regulatory clarity, collaboration, and digital infrastructure support.
- The FCA’s current projects include initiatives like the Smart Data Accelerator and Open Finance Sprint, aimed at promoting data sharing, transparency, interoperability, and consumer empowerment, which are essential for innovation-led growth in financial services.
- The FCA aims for a more coordinated, evidence-based regulatory environment that balances risk management with facilitating growth, recognising that collaboration among regulators, government, industry, and consumers is essential to unlocking economic potential.
Balancing Innovation and Financial Stability
While the FCA seeks to encourage innovation, it must also balance this with safeguarding financial stability. UK financial services productivity has stagnated relative to peers, in part due to post-crisis regulatory challenges. High-growth firms in the UK are increasingly favouring more flexible overseas markets over domestic listings.
The financial sector, which contributes over 8% of the UK's gross domestic product, has undergone significant changes due to the rise of fintech and cryptocurrency markets. University College London's study notes that fintech institutions may offer better access to credit for low-income households, but they also carry specific tail risks that current regulation has not fully stress tested.
Cooperation for a Stronger Financial Services Sector
Deeper co-operation between regulators and trade bodies could help amplify the UK financial services’ global brand, especially in emerging fields such as green finance, digital assets, and environmental, social, and governance-aligned investment. The FCA can play a vital role in simplifying cross-border investment approvals and improving the environment for international listings.
In conclusion, the FCA's strategic approach to financial regulation holds the potential to enable innovation, support emerging companies, boost productivity in financial services, and strengthen the UK’s position as a competitive global financial centre. This integrated regulatory approach is key to promoting sustainable and innovation-driven economic growth in the UK.
- The Financial Conduct Authority (FCA) is emphasizing the importance of financial regulation in fostering sustainable, innovation-led growth within the UK economy.
- The FCA's new objective is to embed growth considerations into financial services regulation, transforming it into a catalyst for long-term, inclusive, and internationally competitive growth.
- The FCA's economic research competition underscores the idea that well-calibrated regulation can protect consumers while releasing the private sector's dynamism, contributing to productivity, resilience, and inclusiveness.
- Research funded by the competition, such as the University of Birmingham’s study, demonstrates the importance of regulation in understanding and supporting the financial needs of growing firms.
- Regulation is becoming more agile and innovation-friendly, helping fintech developments, cryptocurrencies, and open finance ecosystems to thrive through regulatory clarity, collaboration, and digital infrastructure support.
- The FCA is working on initiatives like the Smart Data Accelerator and Open Finance Sprint, aimed at promoting data sharing, transparency, interoperability, and consumer empowerment for innovation-led growth in financial services.
- The FCA is striving for a more coordinated, evidence-based regulatory environment that balances risk management with facilitating growth, recognizing the importance of collaboration among all stakeholders to unlock economic potential.
- The FCA must balance encouraging innovation with safeguarding financial stability, as UK financial services productivity has stagnated relative to peers due, in part, to post-crisis regulatory challenges.
- Cooperation between regulators, trade bodies, government, and industry is essential for the UK financial services sector to maintain a strong global brand, particularly in emerging fields like green finance, digital assets, and ESG-aligned investment.
