28 November 2022

The Financial Services and Markets Bill is critical for the economy

The UK has much to offer, but needs the right regulation to succeed.

Financial services accounts for 8 per cent of Britain’s GDP – it is a sector that needs to thrive for the economy to grow. Insurance accounts for a significant proportion of that and without it many things we take for granted would stop, be heavily curtailed or become prohibitively expensive.

Much of the world comes to the UK to find insurance for the most complex risks because we have world-leading expertise and large pools of capital. When an earthquake devastated the New Zealand city of Christchurch in 2011, its recovery was made possible by the UK’s international insurance industry. Green tech is another example. The UK leads in the climate risk modelling that will help businesses to manage the risks of adopting the technology to get us to net zero.

The UK has much to offer, but we risk falling behind. While, according to the Association of British Insurers (ABI), our insurance industry is the largest in Europe and the fourth largest in the world, our market share has been stagnant for a decade. Businesses have choices about where they place capital, income and people, and regulation is a vital part of those decisions. The quality of our financial regulation is a major asset for the UK and nobody is looking for a reduction in those standards. But the burden and cost of regulation and supervision can be a significant deterrent.

The Financial Services and Markets Bill currently making its way through parliament is critical for the sector and the economy at large. The inclusion of a growth and competitiveness objective for the regulators is welcome and something the London Market Group (LMG) has sought for some time. Having regulators who think about our place in the world, alongside stability and consumer protection, is vital for our future growth.

But the Bill lacks detail on what the regulators need to do to show that they are considering our competitive position, or how they will be held accountable – it lacks teeth. The LMG has developed a range of ideas on this, and we are keen to work with government, the regulators and parliament to ensure the objective makes a real difference.

Proportionality, already an existing duty of the regulators, also needs to be delivered in practice. The regulatory measures in the Bill could make a greater distinction between types of firms and their clients, between wholesale markets with sophisticated corporate buyers (like the London Market) and individual consumers buying home or car insurance. By showing more refinement in classifying customers and activities, regulators would have greater resources to protect vulnerable consumers.

Most of all we need a regulatory culture which says “how can we help?”. This is critical when there are opportunities where the UK could be a global leader. Many other well-respected regulators guide incoming businesses through the complexity – not lowering the barriers but helping to clear them. This is as much about culture as it is about rulebooks and legislation. But the details will ultimately kick-start the change in behaviours – so the Bill needs to get them right.