The UK is operating in an increasingly complex and internationally competitive environment. Existing and emerging financial centres are adapting to rapid technological and geopolitical change, which promises new business models, risks, and opportunities. Domestically, there is a renewed focus on how to improve the productivity of the financial and related professional services industry itself, and how the industry can drive growth in the wider economy. Finally, following the UK’s exit from the EU, the regulatory architecture for financial services and the role of the financial regulators – the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) – has undergone substantial change, with more to come.
The UK regulators’ new secondary competitiveness and growth objective is an important tool to promote risk-based, outcomes-focussed regulation. The result should be a regulatory regime that is more efficient, more effective, more resilient, and responsive in times of crisis, with policymakers and regulators better able to communicate meaningfully about their objectives, capacity, and results.
The FCA and PRA have set out the metrics they will publish to enable stakeholders to track progress and support scrutiny of their work to embed and advance this new objective. However, government and the regulators have acknowledged that the proposed UK metrics do not of themselves provide a basis for international comparison.1 This is a crucial component to understanding how UK regulators’ performance and conduct is contributing to the UK’s competitiveness and driving growth.
Therefore, Freshfields Bruckhaus Deringer LLP has conducted a survey of lawyers in 21 jurisdictions, including major financial centres and offshore venues, regarding whether:
- The financial regulators in those jurisdictions have competitiveness and/or growth objectives or other expectations.
- KPIs or other measures are used to monitor those objectives/expectations or the performance of financial regulators more generally.
- Any body monitors the regulators’ performance against these objectives/ expectations or more generally.
Key conclusions
The UK regulators’ metrics are set to provide world-leading transparency
Our research illustrates that the metrics that the UK regulators will use to report against their secondary competitiveness and growth objective will provide world-leading transparency and accountability. This reinforces the perception that the UK is at the global forefront of initiatives to ensure its regulatory regime is proportionate, effective, and responsive.
Our analysis of regulators across 21 jurisdictions illustrates that several have a comparable objective or expectation to advance competitiveness and/or growth. However, our analysis has also confirmed that few, if any, jurisdictions publish quantitative metrics equivalent to those of the UK regulators.
Data limitations require creative and holistic approach to international benchmarking
Due to the practical and conceptual limitations of directly comparing regulators’ operational outputs across jurisdictions, it is necessary to think creatively about how to construct a holistic framework for international benchmarking. Such a framework should incorporate the operational metrics produced by regulators but take a wider view of how regulators’ activity impacts competitiveness. It should draw on inputs from a variety of market participants, including a range of qualitative metrics and indicators developed with industry.
Developing additional metrics and indicators will need further detailed work but should involve a mix of approaches, including:
- Qualitative competitiveness metrics, such as the ease of making changes to an authorised fund, and the ease of establishing a new insurance business across jurisdictions.
- Broader indicators that could serve as proxies for regulatory competitiveness, such as the percentage of a business’ headcount dedicated to compliance functions across jurisdictions, and comparison of various regulators’ approaches to new market entrants with respect to branching or the need to subsidiarise.
- Opinion surveys to provide periodic snapshots of industry sentiment of regulators across jurisdictions.
Effective scrutiny should draw on a broader reporting framework developed with regulator and industry input
Applying accountability and scrutiny to regulators is rightly a role for Parliament. The objective should be to ensure that the debate about the performance of regulators is evidence-based – utilising the facts faced by regulators, the regulated and the beneficiaries of regulation.
There appears to be a growing political consensus that Parliament would benefit from greater access to rigorous and well-informed analysis of the regulators’ impact and a longterm strategic view on regulatory performance. Developing a holistic reporting framework – including international comparisons – would be a valuable tool to aid effective scrutiny and would strengthen the legitimacy of independent regulation.
There have been various proposals put forward for a new or existing body to play a role in enhancing regulatory accountability and scrutiny, which differ in important respects, and are not necessarily confined to the financial services regulators. Whether a new or existing expert body should play a role in developing the regulatory accountability framework requires careful consideration and design. Different approaches would have implications for resourcing, staffing, and, crucially, the body’s relationship with Parliament, the regulators, and industry. Considerations include:
- Would such a body be situated within government, or within a new or existing independent body?
- Who would bear the cost of such a body, and would it add to the regulatory burden for industry?
- Would such a body have a remit across a wide range of regulators, or would a specialist body for financial services be more appropriate?
- What, exactly, would such a body be tasked with?
Ultimately, the barriers to enabling and sustaining a risk-based approach to regulation and within regulators are often cultural and political – a reflection of attitudes and incentives across society. Regulators need a political and institutional framework that enables them to accept a degree of calculated risk, and communicate the benefits of a bolder risk appetite to the public.
Developing a framework for international comparison: next steps
We have undertaken a range of work throughout the development and implementation of the Financial Services and Markets Act 2023, which sets out the need for the regulators to publish reports to track progress and support scrutiny of their work to embed and advance their new secondary competitiveness and growth objective.
Our discussion paper and suggested approach to developing a framework for international comparison is an important step in the process of helping government and regulators in their consideration of how the regulators’ performance can be meaningfully compared to those of international comparators.
We will undertake a programme of engagement with industry, HM Treasury, Parliament (including the Treasury Select Committee and the House of Lords Financial Services Regulation Committee) and regulators to discuss the findings of our discussion paper.
Our approach will focus on both what is measured, and how the metrics will be constructively used by regulators, government, Parliament and industry to fine tune and adapt the regulatory system over time. This includes further development of the role of a possible new body to help inform scrutiny of the regulators, including the development of a framework for international comparison of the regulators’ performance.
We will make further recommendations to the regulators on possible enhancements to their reporting following the publication of their respective performance reports in summer 2024. This will include:
- Assessment of both quantitative and qualitative reporting by the FCA and PRA and suggested enhancements for the next report due in summer 2025.
- Analysis of how this reporting compares to some of the examples identified throughout this research, including reporting frameworks being developed in other jurisdictions.
- Further consideration of the extent to which broader indicators might be used as proxies for regulatory competitiveness. Advancing international competitiveness and economic growth: how do financial regulators compare?
- How best to undertake independent opinion surveys to help inform enhancements to the regulators’ performance and regulated companies’ day-to-day lived experience.
- The need for performance measurement to be agile – the international environment the UK is competing in is constantly evolving, and the UK needs to adapt to remain competitive over time.
These next steps will help inform our broader work on the integrity, transparency and adaptability of the UK’s regulatory system and its impact on the growth and resilience of the UK economy.
Click here to read the full survey responses conducted by Freshfields Bruckhaus Deringer LLP of lawyers in 21 jurisdictions.
