If left unchanged, this culture can undermine trust between the regulators and industry,” it suggested.

The report, ‘Growing pains: clarity and culture change required’, evaluated whether the secondary international competitiveness and growth objective of UK regulators (FCA and PRA) was being met. The objective in question — to facilitate the growth of the UK economy, particularly financial services, in the medium to long term — was introduced in the Financial Services and Markets Act (FSMA) 2023.

The committee said it found “long-standing issues” that had introduced “unnecessary frictions to financial services firms’ ability to grow, innovate, and compete, and that discourage new entrants both domestic and foreign.” It went on to say that this negatively impacted the perceived attractiveness of UK as a global finance centre.

According to the report, the burden of compliance in the UK is perceived to be disproportionately high, with firms being inundated with information requests from the FCA and the PRA following a significant increase in “mission creep”.
The paper noted that this had grown bureaucracy and imposed more monetary and resource demands on firms.

Alongside these perceived inefficiencies, a need for further clarification and simplification was also expressed, with firms complaining that the regulatory environment was “overly complex”, making it difficult to navigate and remain compliant.

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While the committee noted that overly complicated regulations may reduce the attractiveness of investment into the UK and cause a “regulatory penalty” to the second objective, they suggested that there were valuable lessons to learn from methods applied in countries such as Singapore, such as using a concierge service for international firms looking to navigate UK regulations.

Speaking to B&C, Ray Cohen, director at Jackson Cohen Associates, highlighted the issues that specialist finance lenders in particular may find when navigating regulators, pointing to the costs of compliance.

“Consumer Duty itself, while a very worthy ideal, is a massive cost to firms on an ongoing basis, not just a one off,” he said. 

“For firms, it is about whether that burden is actually cost effective to make it worthwhile being authorised.

“The FCA refers to proportionality for the size and nature of the firm, but the reality is that firms still have to dedicate a lot of resource to reviewing, monitoring, and producing reports/MI to demonstrate that they are meeting [its] four outcomes, plus discussing and recording at board etc. For a small bridging lender, that is a lot of resource requirement.

“Removing some specific rules and relying on Consumer Duty to ensure the outcome is still received means firms may have to document more.”

Ray also noted the weight of costs associated with becoming authorised, giving an example of a £10,000 FCA fee for a mortgage application plus the significant costs of getting the application to submission stage and the ongoing fees based on the amount of business and sectors they operate in.

“The cost for a non-regulated lender to register an originating entity for ML supervision with the FCA (a legal requirement of not holding authorisation) is £540 to apply and £1,000 a year renewal,” he explained.

Lenders also highlighted the efficiency issues that can come with regulation. Louis Alexander, CEO at Somo, asserted that his firm being unregulated had not shielded it from some of the hurdles involved with UK regulators.

“We believe the principles behind regulation — customer protection, clarity, and accountability — are fundamental to doing business well,” said Louis.

“But there’s no doubt that the current regulatory landscape can create unnecessary friction for the wider market. It’s slow, complex and risk-averse — often at the expense of innovation and access to funds.”

Louis suggested that the “enemy” is not risk itself, but poorly managed risk. “What we need is an environment that empowers responsible lenders to act with agility, apply judgement, and serve customers in real time. 

“A more inclusive dialogue between regulators and the whole lending ecosystem, including unregulated firms that uphold high standards, would go a long way in restoring trust and unlocking sustainable growth.”