UK: The FCA and PRA’s proposals to boost economic growth

Why should I read this?

On 24 December 2024, the UK Government sent a letter to the UK's main regulators requesting for ideas to boost economic growth. 

The FCA and the PRA have responded with proposals on how to advance competitiveness and growth:

• FCA letter in response to UK Government call for regulators to support growth
• PRA letter in response to UK Government call for regulators to support growth

What do I need to know about the FCA’s letter?

In its letter the FCA sets out the work it already had planned for 2025 and new proposals which go further. Those listed include:

• Wholesale markets:  in addition to the FCA’s ambitious plans to reform the wholesale markets to unlock capital investment and liquidity this year (including by revising the prospectus regime, reducing conduct requirements for wholesale insurers and launching a consolidated tape for fixed income), it will now accelerate a review of capital requirements for specialised trading firms.
• Digital innovation:  the FCA had already planned to launch the digital securities sandbox, make reforms in the pension space (including reforming online pensions tools and taking next steps on pension dashboards) and rely on existing frameworks for AI (ie without needing new rules), but now also proposes to:
  • with the PSR, introduce a new open banking payment method – variable recurring payments
  • use powers anticipated under the Data (Use and Access) Bill to develop open finance
  • accelerate the adoption of securities settlement in one day (T+1)
  • move towards an electronic form of securities

The FCA could also:

• remove the £100 contactless limit and introduce digital wallets (inspired by US examples)
• set new digital service standards, eg electronic verification of death for life insurance claims

The FCA suggests the UK Government could help by:

• introducing a digital form of ID
• enhancing the quality of the Companies House database
• digitising the court system

The second and third are already UK Government policy and the first could be satisfied by the recently-announced introduction of digital driving licences.

• Reducing the regulatory burden: in addition to its existing plans to remove unnecessary regulation the FCA will:
  • remove the need for a Consumer Duty Board Champion now the Duty is in effect
  • in future consumer protection consultations ask if new rules are unnecessary due to the Consumer Duty
  • begin simplifying responsible lending and advice rules for mortgages
  • consult on removing maturing interest-only mortgage and other outdated guidance
  • work with UK Government to remove overlapping standards, eg the Mortgage Charter
  • review the proportionality of reporting requirements and remove redundant returns

With UK Government help, including accelerating modernisation of the Consumer Credit Act, the FCA could go further and reduce costs of anti-money laundering measures, relaxing know your customer requirements on small transactions.

• Making it easier for firms to start up and grow:  the FCA is keen to speed up regulatory timescales and will:
  • provide every regulatory sandbox firm with a dedicated case officer
  • provide 50% more dedicated supervisors to support more early and high growth firms
  • extend pre-application support to all wholesale, payments and crypto firms
  • more frequently indicate that they are ‘minded to approve’ promising start-ups to help them secure funding

• Improving exports and inward investment:  to provide major international investors easier access to the FCA, in addition to their currently establishing a presence in the United States, the FCA will now go further and establish a presence in Asia.

What do I need to know in the PRA’s letter?

In its letter, the PRA highlighted the steps it has recently taken to promote competitiveness and growth (including the implementation of Basel 3.1, implementing a new Solvency UK regime for UK insurers, removing the bankers’ bonus cap and seeking to review the SMCR) and those further actions it intended to take, including:

• simplifying the prudential regime for small banks
• increasing the ability of the insurance sector to invest in the UK economy:
  • consulting on establishing a ‘Matching Adjustment Investment Accelerator’
  • exploring whether the National Wealth Fund can generate investment opportunities with an economic profile that works for insurers
• improving the UK framework for Insurance Special Purpose Vehicles (“ISPVs”)
• making further amendments to remuneration requirements for banks to enhance competitiveness
• simplifying regulatory data reporting from banks

The PRA also indicated that it would like to explore with HM Treasury and the Department of Business and Trade whether there are wider changes which could be made. Those suggested include:

• establishing a concierge service to help foreign firms navigate the UK regulatory regime when thinking about locating new businesses in the UK
• rationalising the UK financial services regulators’ ‘have regards’ letters to reduce the complexity of the analysis required when making or amending regulation
• looking for potential overlaps between the PRA’s governance and disclosure requirements and those of legislation or other relevant regulators to reduce them

How Eversheds Sutherland can help

Our team have been advising on regulatory interpretation and product development for the fund management and broader financial services industries since the 1980s and we have been at the forefront of new products under European and UK regulation since then. Our in-depth understanding of the sector and experience with the practical implementation of new requirements means that we are very well placed to guide you in complying with the changing regulatory environment.