Unlocking growth through regulatory certainty

• The Government intends to publish an action plan for making regulation work better for UK business in March.

• Whilst regulators have submitted proposals to the Chancellor for promoting growth, not enough is being done to address regulatory uncertainty caused by slow policy decision-making. This impacts firms’ willingness and ability to invest.

• Transparency can encourage a culture of urgency and accountability. The regulators should do more to highlight the issues that business is waiting for them to rule on so that it’s visible to politicians and civil society. One simple step would be a webpage listing closed policy consultations and the time lapsed since they closed.

**********************

In January, the FCA and other regulators responded to a letter from the Prime Minister, Chancellor and Business Secretary asking for their recommendations for supporting economic growth.

There's been a lot of media coverage of the ideas they pitched back to the Government. Loosening mortgage criteria. Scrapping the contactless payment limit. Providing better tools for explaining pensions.

However, the FCA letter missed what is potentially the single biggest thing that regulators could do to support UK economic growth, and that is speed up the regulatory decision making process.

Regulatory limbo

Too often, industry is sat drumming its fingers in ‘regulatory limbo’ - that period between a regulatory body saying we’re thinking about making changes and actually confirming what those changes are going to be. 

Government and regulators issue a consultation, industry replies then.... nothing. Maybe a holding response emerges, or even a summary of submissions received by the regulator. Sometimes you get answers to some of the questions consulted on but have to wait for many months - even years in some cases - for a complete response.

Firms are effectively waiting for certainty and confidence to invest, innovate and bring new products and services to market.

Clear regulatory policy positions provide that certainty and confidence, particularly in highly regulated sectors like payments, and particularly for start up and scale up businesses that do not have the cash runway to wait.

They promote growth.

National Payments Vision points to sunnier uplands?

For the payments sector specifically, improvements are already underway. The National Payments Vision did a great job of articulating goals for regulators and industry to aim for. Making seamless account-to-account payments ubiquitously available online and in stores was one that GoCardless particularly cheered. 

The regulators are also open to and proactive in engaging industry. Regulatory capture would be a bad thing, but listening to industry experts is critical.

And sometimes it’s important to give industry the space to lead within parameters set by the regulators.

Again, the National Payments Vision nails it by giving one regulator - the FCA - overall responsibility for open banking, whilst simultaneously asking "industry partners [to] play their role in supporting the effective and timely delivery of a sustainable commercial model."

These are all positive developments that help with the pace of regulatory decision making, but is it enough?

Transparency and accountability 

Let’s take a long standing policy concern as an example: introducing variable recurring payments (VRPs) in the UK as a competitor to card payments. A regulatory consultation on ‘expanding VRPs’ was published in December 2023. Firms were given six weeks - over the Christmas period - to respond. 

That consultation closed over a year ago and firms still do not have answers to foundational questions posed in it. The regulators have said VRP services will launch in 2025 for firms in a limited number of sectors, but without the policy answers you can understand why banks and fintechs are treating that statement with caution. They’re waiting for clarity rather than investing and building on what could be shaky policy ground.

Some financial regulatory activity has to meet set delivery timelines, like market reviews. There are legitimate reasons why policy consultations require more flexibility. Our regulators are juggling a huge number of policy initiatives, many of which are complex. But there should be a way of monitoring the holistic, as well as the specific, impact of regulatory limbo. 

If data on it was readily available - perhaps a webpage listing closed consultations and how long industry has been waiting for a policy position from the regulators for - it may shine a light on those issues and sectors waiting for regulatory clarity and encourage a culture of urgency and accountability. It would be easier for politicians and civil society to know what the issues are and explore them in more detail to see if these delays are justified.

The FCA letter says, “Certainty and predictability underpin business and investor confidence.” If the Chancellor is serious about creating an environment conducive to business growth then reducing regulatory uncertainty should feature prominently in her action plan next month.