What is the context for this Call for Input? 

Nikesh Pandit: “Within the financial services industry there have been longstanding concerns, particularly by smaller firms, about the length and complexity of the FCA’s rules and guidance. 

“Aligned to this, the new Labour government is committed to enhancing the international competitiveness of financial services and considers streamlining the FCA’s 10,000+ page regulatory handbook a means to do this. The FCA had also planned to undertake a review of its rulebook to support its secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term.”

What are the benefits of outcomes regulation versus prescriptive rules? 

NP: “The benefits of higher-level outcomes-focused regulation include reduced complexity, greater scope for innovation, and adaptability. 

“Fewer detailed rules can increase consumer participation and the ease of doing business. Additionally, reliance on higher-level standards generally gives space to innovate to tackle evolving harms and deliver good outcomes for consumers based on a firm’s own business model, customer base and product offering. 

“In that sense, outcomes focused regulation offers greater futureproofing than more rigid binary rules. That said, prescriptive rules are also important to ensure, for example, that consumers are given the information they need in a manner that enables comparison across firms and products, better consumer choice and competition.” 

How important is regulatory certainty when simplifying? 

NP: “Having a stable set of rules that sets out what is lawful is absolutely vital. Regulatory certainty enables compliance and keeps the cost of compliance down. In my view, regulatory certainty is best achieved by having a hybrid of higher-level rules and more granular rules where this is needed.

“For example, removing certain prescriptive mortgage disclosure rules and relying on the Consumer Duty's high-level rules might provide greater flexibility for firms to deliver good consumer outcomes in fast-paced, event-driven distress scenarios. 

“Equally, clear and narrowly focused rules, such as those introduced under the FCA’s product intervention rulemaking powers to address serious concerns, can deliver certainty for firms and the market in a way that high-level rules may not be able to replace.”

Is cultural change a feature that is important to bear in mind, in this context? 

NP: “Yes. By removing prescriptive rules, firms have to ‘think for themselves’ and be proactive in coming up with innovative ways to achieve the goal (e.g. better ways to communicate with customers). Before, there might have been a temptation to do the minimum – to just comply with the rule.

“Indeed, the FCA has reported that as a result of the Consumer Duty it has already seen an increased focus on the customer at board level, with firms’ senior leadership teams giving serious consideration to what the Consumer Duty means for them at a practical and cultural level and firms designing and adopting innovative approaches to identify and resolve issues.” 

What are the main benefits and costs from simplifying? 

NP: “The main benefits of simplifying are greater consumer engagement, faster and more appropriate outcomes and often reduced cost. For example, requirements before entering into a consumer credit agreement under the Consumer Credit Act 1974 are highly prescriptive and inflexible. 

“Some stakeholders argue the level of prescription can lead to consumers not engaging with the information, or act as a barrier to firms engaging effectively with customers in financial difficulty. Current requirements can potentially make it more difficult to provide appropriate information through the digital channels that consumers frequently use to apply for and manage credit agreements. 

“If more outcomes-focused and less prescriptive requirements were in place, this could have benefits for consumers, firms and even the regulator in terms of ensuring the market functions well. These steps would also reduce cost.

“However, the Call for Input notes that more detailed rules in a machine-readable handbook could make it easier for innovative regulatory technology models to provide compliance solutions for firms. All of this would, however, come at an initial cost. Simplification can also result in reduced standardisation and less certainty, transparency and/or consistency for consumers, firms and the market as a whole. 

“In the pursuit of economic growth, we should be mindful not to over deregulate. History shows that periods of regulation and deregulation are cyclical. As memories of the 2008 financial crisis fade and pressure to achieve grows, calls for deregulation may become increasingly prominent. While it is always important to ensure that the system is efficient, it is vital that consumers, firms and markets are appropriately protected.”

The Call for Input closed on 31 October.

Nikesh Pandit, regulatory barrister at 4-5 Gray’s Inn Square and ICAEW Financial Services Faculty board member,

• This is an abridged version of an article available via the ICAEW Financial Services Faculty. Find out more about the faculty and how to become a member.