Urgent Demand from FCA for a More Adaptable Regulatory Structure

The Financial Conduct Authority (FCA) in the UK has announced a strategic shift in its approach to financial regulation, with a focus on promoting sustainable, innovation-led growth in the financial services sector. This change in direction is based on the key insights from the FCA's economic research competition and related initiatives.

The FCA's strategy aims to achieve this goal by championing open finance and smart data, improving market transparency, and fostering competitive capital markets. The authority is actively advancing these objectives through initiatives like the Smart Data Accelerator and TechSprints, which focus on SME finance and mortgages. These programs are designed to unlock innovative financial products and services that drive inclusive, sustainable growth through data sharing and innovation.

Regulatory reforms also play a significant role in this strategy. The FCA is reviewing client categorisation rules and the elective professional client framework to unlock investment opportunities for high-net-worth investors, thereby enhancing capital markets and driving economic growth.

The FCA's roadmap for open finance, set to be unveiled by early 2026, and ongoing consultations indicate a strategic push to embed innovation while maintaining robust consumer protections and market integrity. The authority is also working to reduce unnecessary burdens on firms, supporting operational efficiency and allowing firms to better focus on innovation and growth.

The FCA's strategy also incorporates its secondary international competitiveness and growth objective (SICGO), balancing proportionate regulation with enabling competitiveness of UK financial markets globally, attracting listings, and supporting capital raising. This approach emphasises proportionate, risk-based supervision that fosters innovation while safeguarding against abuses.

The FCA's strategic shift comes at a time when the UK's financial sector, which contributes over 8% of the country's gross domestic product, has undergone transformative changes over the past decade, with the rise of fintech and cryptocurrency markets. However, UK financial services productivity has stagnated relative to peers, in part due to post-crisis regulatory challenges.

The UK government has cast economic growth as a national mission, and the FCA has been entrusted with a secondary objective: to facilitate the international competitiveness and growth of the UK economy, particularly its financial services sector, over the medium to long term. This change in focus is a timely response to the evolving landscape of the financial sector and a recognition of the need for regulatory approaches that understand the potential of non-bank financial entities to transmit or amplify shocks.

As the FCA navigates this new role, it must tread a careful line, enabling innovation while safeguarding financial stability. Deeper co-operation between regulators and trade bodies could help amplify UK financial services' global brand, especially in emerging fields such as green finance, digital assets, and environmental, social, and governance-aligned investment.

In conclusion, the FCA's strategic shift towards financial regulation as an enabler of sustainable, innovation-led growth represents a significant step forward for the UK's financial sector. This approach, if successful, could make the sector more dynamic, resilient, and globally attractive while ensuring consumer protection and market integrity.

[1] FCA (2022). FCA's strategic approach to open finance. [online] Available at: https://www.fca.org.uk/publications/corporate/fca-strategic-approach-open-finance-2022

[2] UK Government (2021). National Infrastructure Strategy. [online] Available at: https://www.gov.uk/government/publications/national-infrastructure-strategy/national-infrastructure-strategy

[3] FCA (2021). FCA's approach to proportionality. [online] Available at: https://www.fca.org.uk/publications/corporate/fca-approach-proportionality

[4] HM Treasury (2021). UK's Future Regulatory Framework. [online] Available at: https://www.gov.uk/government/publications/uk-future-regulatory-framework/uk-future-regulatory-framework

[5] OECD (2021). Regulatory policy outlook: UK. [online] Available at: https://read.oecd-ilibrary.org/governance/regulatory-policy-outlook_reg-policy-outlook-uk-9789264315044-en#page24

The FCA's strategic approach towards financial regulation emphasizes the promotion of sustainable, innovation-led growth in the financial services sector, demonstrating a shift from traditional approaches.
Key insights from the FCA's economic research competition and related initiatives have informed this strategic change, guiding the FCA's focus on open finance, smart data, and market transparency.
Regulatory reforms such as reviewing client categorisation rules and the elective professional client framework are instrumental in driving economic growth and unlocking investment opportunities.
The FCA's roadmap for open finance aims to embed innovation while maintaining robust consumer protections and market integrity, and includes a strategic push to reduce unnecessary burdens on firms to enhance operational efficiency.
The FCA's strategy incorporates the SICGO objective, demonstrating a commitment to balancing proportionate regulation with enabling competitiveness of UK financial markets globally.
This timely strategic shift comes at a critical juncture for the UK's financial sector, which has undergone significant transformation over the past decade, including the rise of fintech and cryptocurrency markets.
As the FCA navigates this new role, deeper co-operation with regulators and trade bodies will be essential to amplify the UK financial services' global brand and attract investment in emerging fields such as green finance, digital assets, and sustainable finance.