7th July 2025
Last week, the Lending Standards Board announced it was closing down - the latest victim of the deregulatory, growth at all costs agenda. The government will soon have a fight on its hands
We've now had almost a whole year of a continued drip drip of deregulatory rhetoric being pushed by Government, and as a result by the FCA too. In all regulated sectors, we should never stop asking the question whether we have got the right balance with regulation. But in financial services, it's a myth to suggest that we’re wildly out of kilter and that this is inhibiting growth. Indeed, after a year of this agenda being pushed by Government persistently, I've yet to see any convincing evidence that financial services regulation has gone too far.
As the FCA’s CEO Nikhil Rathi has pointed out several times in hearings at the Treasury Select Committee this year, the deregulatory idealogues are often short on ideas about what exactly they would cut in practice.
Yet under constant pressure from Treasury to sing to the deregulatory tune, we've now seen dozens of micro cuts announced by the FCA over the past few months - sending a signal to industry that the pressure is off.
Last week, one industry insider said to me what I'm confident many others are feeling: we're not worried about a market study in our sector, as it's inconceivable that the FCA will do anything radical in this political climate. Yet this is a sector – like most others - where there remains work to do to support good customer outcomes.
Reading recent FCA speeches and consultation papers – along with Treasury Select Committee transcripts - presents a very muddled picture. One day the regulator will be warning about the dangers of rebalancing risk, and the next they will be advocating for some new regulatory cut.
My instinct is that most people who work in the FCA have not changed their philosophy. They believe that regulation is broadly in the right place - and stand ready to warn the government that rebalancing risk is likely to lead to more consumer casualties, and unlikely to deliver the growth they so badly want.
Yet at the same time, their lack of independence from Government means they periodically have to speak up in support of the deregulatory agenda.
A case in point would be a speech by Nikhil Rathi last month, where he called for the abolition of the Government’s Mortgage Charter.
For those who have forgotten exactly what the Mortgage Charter was (which no doubt includes some of the firms who signed up to it), this was a piece of political posturing during the early days of the Sunak government. Banks and building societies agreed to go easy on families who were struggling when their mortgage payments went up due to rising interest rates. In reality, however, most lenders had been taking this approach for years. It’s rarely in anyone’s interest to repossess a property. If some breathing space and flexibility can help get the family back on track – it’s a better outcome for both consumer and lender.
Repealing this Charter seems as pointless as introducing it. Nevertheless, we should acknowledge that there is power in a narrative. So while the Mortgage Charter didn’t achieve much in practice, it did give the Government the chance to signal to borrowers that it was on their side. In a similar vein, the FCA’s 14-point cash savings plan didn’t really achieve anything. But it signalled to savers that the Government and regulators were willing to assert pressure on banks, to pay better savings rates at a time when most borrowers were beginning to feel the pinch of higher mortgage rates.
So while repealing the Mortgage Charter won’t achieve anything in practice, it will reinforce the message that this Government is not on consumers’ side – and will embolden those who want to play at the boundaries of current conduct rules.
Last week, it was announced that the Lending Standards Board was closing its doors after 16 years. The LSB plays an important role in providing voluntary regulation for parts of the SME lending sector that sit outside of formal FCA oversight. Even in regulated sectors, the LSB helped support better conduct through the implementation of standards that go beyond regulatory minimums.
It's hard to have seen the banks taking the decision to defund the LSB were it not for the current mood music coming out of the Treasury.
The aim of the Government’s deregulatory agenda is to drive more investment into the UK financial services sector. But there’s little evidence that is happening or will happen as a result of the current anti-consumer rhetoric. What we can see, however, is a reduction in consumer protection and a potential gateway to poorer conduct as firms start to feel untouchable.
Lest we forget, modern day financial services regulation is less than 25 years old. And when the FSA was first established, the industry was awash with mis-selling scandals and bad practice.
Over the last two and a half decades, levels of conduct have improved markedly. And after the financial crisis of 2008, we put extra safeguards in to protect against prudential risks in the market.
As a result, we have a better quality, more resilient retail financial services market, with the right consumer protections in place to give people the confidence they need to invest, borrow, save, insure and transact.
My hope was that by this summer, the Treasury would have moved on from this insidious narrative. No one disagrees with their desire to return our economy to growth and improve productivity – but reducing consumer protection is not the answer. Indeed, there is plenty of evidence to suggest that consumer protection and a healthy economy go hand in hand.
This should be a moment for the consumer lobby to unite. But the government has done well tying most of the main consumer organisations up in working groups like the Financial Inclusion Committee – giving them just enough hope that they might get a small win in an area or two they have been campaigning. In that context it makes it hard for them to rail against the general direction of travel.
A storm is certainly brewing, however. Consumer reps are already underwhelmed by most of what is coming out of the Financial Inclusion Committee. My guess is that an underwhelming financial inclusion strategy will be published in the autumn, after which consumer groups may finally decide to start making their voices heard.