Innovation and regulation in financial services are essential to driving the UK’s economic growth, a director at the Financial Conduct Authority has said.
Speaking at The CityUK on FCA’s Growth and Competitiveness Objective, Sheldon Mills, executive director of consumers and competition at the City watchdog, said innovation could come from surprising places
He stated there was often a fine line between having enough rules or regulation to ensure markets work smoothly and not having so many that innovation, gets stifled.
Mills also pledged the FCA would "continue striking that balance" to promote the UK's competitiveness.
“The Financial Services and Markets Bill will require us to continue striking that balance by giving us a secondary objective to facilitate the UK’s international competitiveness and promote sustainable growth over the medium to long term.
"This is while we continue to deliver on our primary objectives to protect consumers, enhance market integrity, and promote competition in the interests of consumers,” he said.
Innovation
Part of the regulator's work to boost UK financial services has been the development of the digital sandbox, which the FCA has confirmed will become permanent.
Mills explained: "We continue to innovate and can confirm our Digital Sandbox will be made permanent, opening up the platform to an even broader range of innovative businesses and start-ups."
The financial services sector directly contributes to economic activity by making up around 8 per cent of GDP, accounting for 2.3mn jobs in the sector and related professional services, and contributing around £100bn in tax.
Financial services also facilitates economic growth by channelling capital to start-ups, small businesses and the largest infrastructure projects – including the vital work of supporting the UK’s net zero ambitions.
“We recognise that achieving sustainable economic growth is a key economic policy challenge, which benefits consumers and businesses of all sizes,” he said.
“We welcome the proposed secondary competitiveness and growth objective, and stand ready to do our part in contributing to this challenge.”
Less prescriptive regulation
In the speech, Mills gave examples of when the FCA has intervened to crack down on consumer credit or insurance.
“These are just some examples of how our primary objectives of consumer protection, market integrity, and competition, drive growth, trust, and good outcomes,” he said.
“Of course, regulation can hinder financial services if the costs are disproportionate to the benefits and if it stifles innovation.
“That is why we have become less prescriptive, and more outcomes driven - for example with the consumer duty which as you should know by now, comes into force in one month.”
However, he explained that being less prescriptive does not mean more lax.
“It took five years for UK GDP to return to its 2008 level following the financial crisis, a crash many attributed to lax regulation and undoubtedly hindered growth,” he said.
