Secondary International Competitiveness and Growth Objective (FSR Committee Report)

Lord Vaux of Harrowden Excerpts

Wednesday 11th March 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I start by declaring an interest: I have a registerable shareholding in Fidelity National Information Services Inc. It has been fascinating to be a member of this committee, which for this report, as we have heard, was so ably chaired by the noble Lord, Lord Forsyth of Drumlean, who, as we all know, has moved on to greater things. I also thank our new chair, the noble Baroness, Lady Noakes, for introducing this debate with her usual clarity.

The noble Lord, Lord Kestenbaum, said that this report is timely and I agree with him, but I would not go as far as to agree with him about the timing of this debate. The report was published almost nine months ago and I confess that it has taken me a little while to get back up to speed and remind myself what it said. I hope that future reports will be considered in a more timely manner.

At the outset, it is worth saying, as we do in our report, that the secondary growth and competitiveness objective has provided a valuable stimulus for the regulators to consider the impact of their activities on growth and competitiveness. We should recognise that they have taken this seriously. Of course, there is a balance to be reached between looking at the impact of regulation on growth and ensuring that risks, both systemic and to the consumer, are proportionately managed. There is a sense that, following the 2008-09 financial crisis, the pendulum has swung too far towards eliminating risk, but we clearly need to be alert to the danger that it might swing back the other way, as we rightly put greater emphasis on growth. We must also recognise that a stable, predictable, even dull regulatory environment has been and is an important aspect of the attractiveness of our financial services sector, but it must be proportionate.

It is a long report, so I will highlight just one or two of the points that we raised. First, as the noble Lord, Lord Kestenbaum, pointed out, concerns were raised about the culture of the regulators. It was very noticeable that witnesses seemed much more prepared to be candid with us in private sessions than in public. Miles Celic, CEO of TheCityUK, put it rather bluntly when he said:

“There is a concern … that, as one person put it to me, being critical of the regulator publicly will result in an enforcement punishment beating later”.


That is concerning. It implies a lack of trust between the regulators and the industry. The regulators should recognise that and do everything possible to overcome it.

Mr Celic also gave us the example of an American company with operations in both the UK and the US, which said that

“regulators in the US … started from the position of asking, ‘What will the impact of what we are doing be on growth?’ But his experience in the UK was that the regulatory starting point was, ‘What will the impact of what we are proposing here be on risk?’”

It seems more difficult than one would expect to make international comparisons of the burden of regulation and there seems to be a reluctance on the part of both the regulators and government to research this fully. We received plenty of evidence that the UK regulatory burdens are significantly greater than those in comparable jurisdictions such as the US. The CEO of Marsh McLennan told us that

“on a direct cost-only basis, the UK is at least six times more expensive than our next most expensive country from a regulatory perspective”.

The Investment Association told us that

“industry headcount for Compliance, Legal and Audit has almost tripled from 2009”,

and other witnesses gave us stark examples of the amount of data that has to be provided, often for unclear purposes, as the data requirements are greater in the UK than in other countries. This may be anecdotal, but it is clear that, at the very least, the UK has gained a reputation for being a disproportionately high-cost environment from a regulatory perspective.

Rigorously analysing compliance costs internationally may be difficult, as the regulators and other analysts make clear, but unless we gain a clear understanding of how we compare to other countries it will be very difficult to understand if and where regulation is creating barriers to growth. This really must be addressed and measured to the extent possible.

However, the Government say in their response that “direct comparison is difficult”, which, to be frank, is pretty weak. They go on to say:

“The government and regulators will continue to consider how the regulators’ efficiency and performance can be meaningfully compared to those of international comparators”.


That was over six months ago, so perhaps the Minister can update us on what further consideration they have carried out in those six months.

The driver for this apparently higher level of regulation in the UK is the risk-averse culture that our report highlights. Regulators understandably became more risk averse after the financial crisis. I have some sympathy for the regulators here; it is very easy for us politicians and the Government to tell the regulators that they should tolerate greater risk, but the regulators know that if some serious risks were to crystallise, the blame would still fall squarely on them. If the Government want to see greater risk tolerance and a lighter-touch regulation, which I think we all want to see, they need to be much clearer about what is acceptable and to accept their share of responsibility if the risk crystallises, not just blame the regulators when it goes wrong.

We also mention in our report regulatory mission creep. Again, there is always a tendency for this—regulators will regulate—and it is right to call it out. But again, we in Parliament and those in government need to take some responsibility for this, too. We keep putting an ever-growing list of objectives, and in particular have-regards, on to the regulators. I know that I am guilty of this myself; I supported the net-zero have-regards in the FSMA 2023, which I now regret, having gone through this process. It can be no surprise that, if we keep adding to regulators’ remits, they will react by adding rules, data requirements and other onerous burdens to meet those. There needs to be a regular review of the objectives and the have-regards so that regulators are able to concentrate on their core purpose and reduce unnecessary burdens on the firms that they regulate. The Government and we as politicians need to be more disciplined about adding to the mission creep of regulators.

It is welcome that the FCA appears to be learning lessons from other jurisdictions. A good example is the creation of a Singapore-style concierge service to support international investment, which is very welcome. I look forward to seeing real metrics about how effective that has been once it has been up and running for a while.

The committee had a lot of discussions about what we mean by growth and competitiveness. First, there is the growth and competitiveness of the financial services industry itself. It is a very significant part of the economy, as the noble Baroness, Lady Noakes, said, so growth of the industry will have an impact on overall GDP of itself. But the secondary objective goes beyond the industry itself, requiring the regulators to consider the international competitiveness of the economy of the United Kingdom and its growth in the medium to long term. It is there that the secondary objective becomes rather less clear.

The link between financial services regulation and wider economic growth does not seem to be widely understood or well researched. Economic growth is driven by new investment into and by business and into productive assets. We saw very limited evidence of how regulation has much impact on that and a lack of data on how much investment is made by the financial services sector into productive assets or growth companies. This needs to be improved. Perhaps the Minister can tell us what the Government are doing to improve that understanding, as we recommended.

I will finish by referring to a current piece of legislation that is going through the House—the Pension Schemes Bill, to which we will be returning on Monday and indeed on which we had an exchange just 45 minutes ago in the main Chamber. Our report highlights that the pension industry is fragmented and underinvests in UK productive assets. I, and I think the committee, agreed with the Government that action should be taken to improve this, which the industry has also agreed. The Pension Schemes Bill tries to address that and a lot of what it includes is good. For example, the proposed value-for-money framework should encourage funds to look more at returns rather than just fees, which should allow funds to consider a wider range of investment types. However, the Bill also includes the blunt instrument of giving the Government the power to mandate asset allocation by pension funds, which the committee raised serious concerns about.

I will ask this Minister exactly the same question that I asked the Minister in the Chamber 45 minutes ago and that I did not receive an answer to. I have asked this several times and still have not received an answer, so I hope the Minister will actually answer it this time. If not, I would be perfectly happy for him to write to me with a real answer, rather than the platitudes that I have received so many times so far.

It is really simple: why do the Government think that pension funds have been so reluctant to invest in these UK productive assets that the Government are so keen for them to invest in? They keep telling us that these are fantastic assets and that there are fantastic returns to be made from them, so why are pension funds not doing it? This is not a rhetorical question, and I really would like an answer.

The reason I ask is that surely a better way to encourage pension funds to invest in UK productive assets would be to identify and remove the barriers that are preventing such investments from being made, and to make those investments more attractive. Surely that is a better way than forcing pension funds to make investments that they do not wish to make.