17th January 2025
The Government is pushing a deregulation agenda which could be damaging for consumers as well as harming their own ambitions to stimulate growth
Unless you’ve been hiding under a rock over the past six months, you can’t have missed the fact that the number one priority for the newish Labour government is to return the UK economy to sustainable growth.
It’s been a core plank in just about every speech that the Chancellor Rachel Reeves has given since she took office. And it’s frequently mentioned by the Prime Minister and other cabinet colleagues.
Few people disagree that growth needs to be a focus for government. But the debate has taken a worrying turn in recent weeks, as ministers have started to suggest that one of the blockers to growth has been regulation.
Back in November, the Chancellor used her Mansion House speech to say that “regulation had gone too far”. She then followed up with a letter to the FCA, asking it to think about how it could better support economic growth – hinting that perhaps the current rules were preventing firms from taking risks that could benefit the economy.
Weeks later, the Prime Minister followed up with a very similar letter to all key service regulators – including the FCA.
This rhetoric certainly runs against the grain of what one would typically expect to hear from a new Labour government. And my initial instinct was that ministers were only blowing the anti-regulation dog whistle in an attempt to fire the financial services industry up into feeling confident the government was behind it.
Two months later, however, I’m starting to worry that ministers may follow through with some damaging actions that could harm consumer protection.
Yesterday morning, on Good Morning Britain, the business secretary Johnny Reynolds took fire at the FCA’s Consumer Duty. Given that financial services is not even on his patch, this seemed like a surprising place to focus his attack.
Whilst taking the time to initially say that the government was not looking to deregulate, he then suggested that the balance between consumer protection and regulation was not right. He recounted how only this week an insurer had told him that the cost of meeting the new Consumer Duty requirements was disproportionate.
This was disappointing on a number of fronts. First and foremost, businesses telling governments that regulation costs them too much money is the oldest line in the lobbying book. I don’t expect firms to stop saying this to government – but I wouldn’t expect to see ministers playing it back to the public as though it’s a fair assessment of the facts. Regulation is an essential part of creating fair markets – and while we shouldn’t stop asking whether we have the right balance, we should be wary of pandering to those who argue against regulation in the abstract. Any debate about improving regulation needs to be anchored in the detail.
Secondly, Johnny Reynolds is well off the mark to seize on Consumer Duty as an example of regulation going too far. To my mind, it has been an overwhelmingly positive policy, which has the potential to support growth if it is followed through. Furthermore, the Government’s cooling on the Duty represents a full 180 on the position it took in its financial services policy manifesto published only 12 months ago.
Back then, Consumer Duty was heralded as an important policy that could be used as the backbone of a more proportionate regulatory system. Rather than criticising the Duty, the Labour Party was rightly acknowledging its potential to support its pro-growth agenda.
If Reynolds’ comments genuinely reflect a change in the government’s view on the Duty – it’s a worrying moment for the future of consumer protection. And it’s also a potential own goal when it comes to the government’s growth ambitions.
At our 10th anniversary party last year, the FCA’s executive director Sheldon Mills made a great speech which outlined why Consumer Duty should be seen as a catalyst for growth, not a blocker to it. A sector that is better trusted and understood by consumers – because it has consumer outcomes at its heart – will prosper.
Over the last 25 years that I have been working in the industry, customer outcomes have often not been front and centre in financial services firms. Most consumers have been let down by a bank or insurer at some stage in their life – and levels of trust in many of these institutions is low. The bad news stories have almost always been driven by the tension between good customer outcomes and good short term shareholder outcomes. It’s easy to make money in the short run by exploiting customer inertia or ignorance. But in the long run, this erodes trust – and holds back the industry’s potential.
Consumer Duty presents the opportunity to align shareholder and customer interests. By forcing companies to put customer outcomes at the heart of their business models, we can stimulate competition on service and quality – and build a market that is better understood and trusted. The result will be that consumers buy a wider array of financial products, which will build households’ financial resilience and allow our economy to grow quicker, as well as recover quicker from difficult times.
Today, the FCA’s chief executive responded to the Prime Minister’s letter, with a list of commitments that included scrapping the requirement for boards to have a Consumer Duty champion, and loosening the Senior Managers Certification Regime. Small steps that could be the beginning of an undoing of the progress that has been made in consumer protection over the last two decades.
I’m not a blind defender of regulation. We need the right regulation and we should perpetually be challenging whether the status quo is right. But it’s highly unlikely that peeling back consumer protections is going to unlock growth in the UK – and it could have entirely the opposite effect. Conduct is so much better today than when I started in this industry at the turn of the millennium - but the job is not even close to done yet.
The consumer voice has got lost in Westminster over the last six months. It’s time for all consumer advocates – including those firms in the industry who support Consumer Duty – to step up and tell the other side of the story, before we start losing the hard fought gains that we've made over the past 25 years.