Sentinel Regulatory Services news & information
A New Approach to Ensure Regulators and Regulations Support Growth
The government wrote to regulators at the end of 2024 against the backdrop of a flatlining economy, requesting that they and their regulations “support growth”. On 16th January, the FCA’s Nikhil Rathi responded to the government’s request with a three-page letter entitled “A New Approach to Ensure Regulators and Regulations Support Growth”. It identifies six key areas of opportunity:
- Unlocking capital investment and liquidity
- Accelerating digital innovation to enhance productivity
- Reducing the regulatory burden
- Making it easier for firms to start up and grow
- Improving exports and inward investment
- Certainty and predictability
Nikhil Rathi has also spoken about a move away from prescriptive rules. This is a huge topic, so here we have highlighted key points based on Sentinel’s recent experiences.
Reducing the regulatory burden
“Streamline our handbook following industry input on rules which could be removed or simplified; and improve accessibility and efficiency with a machine-readable version.”
Older hands may recall the small plastic ring binders used in the infancy of regulation where new rules arrived as hard copy inserts. Quaintly low tech and short compared to the FCA’s current online behemoth (hard copies available for insomniacs at the “reasonable” price of £3,823.05, apparently comprising 3,263 chapters and 10,000 pages).
This sustained growth in regulation has been driven by several factors including expansion of the FCA’s remit, FCA initiatives, EU regulations (AIFMD, MiFID and MiFID prudential to name just three) and regulatory responses to industry shortcomings.
Streamlining the rules will be a huge task, but the FCA has stated it will achieve it with industry input. We fully support such an initiative, with an added “one new rule in and one old rule out” approach too.
Making it easier for firms to start up and grow
The FCA congratulates itself that it meets it statutory deadlines in 98.5% of cases. In our view the FCA should be much more ambitious by halving the time taken from receipt of applications to issuing their “minded to approve” email (or request to withdraw).
Currently the FCA authorisation process represents a significant barrier to entry for new market entrants. It is time and resource consuming and slow (in our experience, automated FCA email responses stated that they had “10 working days” to respond, which adds up during an authorisation). Selectively accelerating the process would be a practical step towards demonstrating that Britain is open for business, reduce barriers and help foster growth.
The FCA has already partially addressed the issue by setting up a programme for large or systemically important new authorisations, which we have seen pragmatically flexed for some smaller applications. In our view a further tweak could be made to this programme by offering firms an accelerated, intensive process (say 2 or 3 months) for additional fees. Not all firms are ready or want a speedy authorisation, but the FCA should consider an accelerated option for those that do and are willing to pay for it.
Start-ups struggle to open bank accounts
Another practical problem faced by firms pending final authorisation is opening a new bank account. Banks of all types (established and challenger) simply refuse to entertain the idea and only relent under duress.
It is a longstanding problem, which is an absurd position for one of the world’s most sophisticated financial service industries to find itself in. Particularly since each firm will have necessarily almost completed the FCA’s rigorous review. Once again, it hardly supports the image of a dynamic financial services industry rolling out the red carpet and open for new business. The FCA needs to bang banking heads together to resolve this issue once and for all.
The FCA employs 5,000 staff to regulate 42,000 firms, so it is a huge challenge regulating an industry that has been a significant driver of UK growth. It has responded positively to the government’s initiative, but it will require a complete change in mindset given the direction of travel over recent decades.
Ian Manson, January 2025
Please contact Alex, Ian, or Lauren at Sentinel to discuss our Appointed Representative services.
