Trumpeted as “international best practice” without a rigorous comparative assessment of alternative global systems and acquiescing with little independent discernment, in 2017 SA adopted the UK’s still unproven “twin peaks” financial services regulatory architecture.
Now, in a searing indictment of the British financial regulatory establishment, the House of Lords financial services regulation committee has published a report that exposes profound structural, cultural and procedural failings in the “twin peaks” structure of the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
The report, “Growing Pains: Clarity and Culture Change Required”, lays bare the institutional inertia that, if left unchecked, threatens to destroy the UK’s long-held status as a global leader in financial services.
The committee’s findings are sobering and unequivocal. More than a year after the Financial Services & Markets Act introduced a statutory duty for UK regulators to facilitate economic growth and international competitiveness, Britain’s two principal financial regulators had made little discernible progress in realising this imperative. Instead, the regulators remain mired in a culture of excessive caution, resistant to reform and deaf to the pressing needs of the rapidly evolving global financial landscape.
The report’s central criticism is cultural rather than merely procedural. It identifies a regulatory mindset calcified and trapped in the rear-view mirror, one that sees its mission through the prism of risk aversion, control and moral hazard minimisation, rather than through a balanced commitment to innovation and economic vitality. This conservatism has ossified into institutional doctrine. The report finds that regulators are more preoccupied with avoiding blame than enabling growth. As in SA, engagement with industry has become sporadic, opaque and overly legalistic.
Most troubling though is the chasm between public rhetoric and private experience. While regulators speak in the language of reform, firms, especially emerging fintechs and scale-ups, describe an environment riddled with delay, arbitrary processes and a pervasive fear of retrospective sanction. The impression is of a system that tolerates innovation only insofar as it does not disturb the status quo.
Compounding the problem is a fragmented regulatory ecosystem in which accountability is diffuse and responsibilities overlap. The FCA, PRA, Financial Ombudsman Service (FOS), Payment Systems Regulator, and other authorities operate in a patchwork of intersecting mandates, producing confusion, inconsistency and procedural redundancy. As in SA, this lack of objective clarity has produced endless bureaucratic entanglement and disturbing levels of self-inflicted mission creep.
The Lords committee was particularly concerned about the incoherence between the FCA’s regulatory function and the FOS’s adjudicatory role. This disconnect has given rise to considerable uncertainty, with firms unsure whether adherence to FCA guidance affords protection from FOS judgments, a situation that hobbles innovation and increases legal risk.
Moreover, the committee finds that, as in SA, no regulator has undertaken, nor has the Treasury commissioned, a comprehensive study of the cumulative burden imposed by the regulatory regime compared with global competitors. It indicates that this omission reflects a worrying lack of strategic self-awareness at a time when international competitors are aggressively courting capital and talent with more nimble and less burdensome regulatory frameworks.
Nowhere is the system’s dysfunction more evident than in the glacially slow authorisation and approval process. The report catalogues numerous instances in which firms waited months, sometimes longer than half a year, for licensing decisions. One firm contrasted the FCA’s six-month timeline with a mere 48-hour turnaround from a European rival jurisdiction. The practice of “stopping the clock” during regulatory assessments, often without transparency or statutory accountability, was condemned as emblematic of a system divorced from commercial reality.
Such delays are not merely inconvenient. They impose substantial opportunity costs, particularly on smaller firms with limited capital. They also deter overseas firms from establishing operations in the country, undermining the very competitiveness the regulators are duty-bound to promote.
In response to this litany of failings of the “twin peaks” system, the committee proposes a robust and comprehensive 10-point agenda for reform. Its recommendations are neither abstract nor aspirational. They are specific, measurable and even achievable within the current legislative framework.
At the centre of this blueprint is a demand for cultural reinvention. The committee calls on the leadership of both the FCA and PRA to articulate and embody a new institutional ethos, one that values proportionate regulation, prioritises efficiency and actively embraces industry innovation. The report stresses that this cultural pivot must begin at the highest levels of the regulatory hierarchy, presumably at the ministerial level.
Second, the committee urges the commissioning of an independent and rigorous study to benchmark the UK’s regulatory cost base against international norms. Without such empirical clarity, meaningful reform is impossible.
Third, it recommends a government-led review to eliminate duplicative mandates and clarify the jurisdictional boundaries between regulators and redress bodies. It argues that such simplification is vital not only to restore trust but also to reduce the systemic drag on compliance and responsiveness.
Additional proposals include:
- Publishing transparent metrics for authorisation processes;
- Expanding access to regulatory “concierge" services for early-stage firms;
- Reforming the redress system to provide greater certainty and coherence;
- Ensuring that regulatory guidance carries protective force in adjudications;
- Developing formal channels for two-way dialogue with industry;
- Tailoring rules proportionately based on firm size and systemic risk; and
- Aligning regulatory objectives with the UK’s broader industrial strategy.
The global financial landscape is undergoing rapid evolution, driven by technological disruption, shifting geopolitical alignments and the rise of new regulatory powerhouses.
In this context, the UK’s aspiration to serve again as the pre-eminent international financial centre depends not merely on historical legacy but on its capacity for institutional adaptability and regulatory excellence. Much the same can be said to apply to SA as the leading financial centre in Africa.
The committee’s clarion call must therefore be heeded. If implemented with vigour and integrity, its recommendations offer the blueprint for a revitalised regulatory state, one capable of safeguarding consumer interests without smothering enterprise; of maintaining prudence without surrendering agility.
Absent immediate and sustained reform, the Lords’ committee infers that the UK’s financial services regulatory regime risks becoming a liability rather than an asset. The country’s reputation as a destination for financial ingenuity and enterprise, painstakingly built over generations, will erode not through a singular crisis but by gradual attrition and bureaucratic incompetence and complacency.
The committee’s message to regulators is unmistakable: statutory objectives are not self-executing. They require translation into daily operational behaviours, institutional incentives and measurable outcomes. Growth and competitiveness must be more than ceremonial watchwords. They must be clear and tangible operational objectives and priorities.
As the FCA and PRA prepare their forthcoming annual reports and strategic reviews, and as the UK Treasury readies its Financial Services Competitiveness Plan, the committee’s findings set a high bar for accountability. As in SA, words will no longer suffice. What is required now is demonstrable action.
In an era in which not only global financial centres’ tax regimes and capital flows compete but also their regulatory quality and agility, the country must adapt or cede advantage. The choice is stark: reform or retreat. The hour is late, but opportunity abounds.
The UK and SA alike must choose: remain mired in red tape, or become a reformed, competitive, growth-driven financial hub, marking the difference between prosperity and parochialism.
• Dr Benfield, a retired Wits University economics professor, is a senior associate and board member of the Free Market Foundation. The full House of Lords report is accessible online.
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