by Jonathan Eida, researcher
The financial services industry remains a key pillar of the UK economy. In 2023, it accounted for 13 per cent of total economic output, equivalent to £294 billion, and directly employed 1.1 million people. A further 1.4 million worked in related professional services. Collectively, the wider financial and professional services sector contributed £110 billion in taxes, around 12 per cent of total government receipts.
Despite this immense contribution, the industry faces mounting pressure from excessive and overlapping regulation. Firms are subject to scrutiny from a host of bodies including the Bank of England, Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), Competition and Markets Authority, The Pensions Regulator, and the Financial Ombudsman Service. On top of that are numerous industry bodies and memoranda of understanding that add further complexity.
The result is a regulatory web that consumes time, money and manpower. Instead of focusing on innovation and growth, firms are forced to divert resources towards compliance. Expanding teams of lawyers and compliance officers come at the expense of business development, while the financial cost of navigating multiple regulatory frameworks erodes profitability. In short, firms are spending more on bureaucracy and less on growth.
The Financial Service Regulation Committee found in their report:
“Firms have told us that they are inundated by information requests from the FCA and the PRA, who are not always transparent about how this information is used. Importantly, we received evidence suggesting that reporting requirements in the UK may be more burdensome than in competing jurisdictions, which may negatively impact on the UK’s perceived attractiveness as a global financial services centre.”
This is at odds with the Financial Services and Markets Act 2023, which introduced a secondary growth and international competitiveness objective for both the FCA and the PRA. Under this legal duty, regulators are required to consider how their actions affect economic growth and international competitiveness. Reducing unnecessary regulatory burdens is therefore not only good policy, it’s a statutory obligation.
Yet, as an example, the Investment Association told the Financial Services Regulation Committee that: “Our industry data highlights that the industry headcount for Compliance, Legal and Audit has almost tripled from 2009”. This demonstrates the compliance cost placed on firms.
Recent evidence suggests the problem is only getting worse. The FCA’s Practitioner Panel Survey 2024-25 reveals rising frustration among firms. Among the 65 “fixed firms”, those subject to the highest level of supervisory attention, almost half said they received too many information requests from the FCA in the past year. That’s a 29 percentage point increase from the low point of 2022-23, and the highest level recorded since 2018. A further 30 per cent said they received “a lot, but I understand why it’s needed.”
These findings underline a clear trend: even after the introduction of the growth and competitiveness objective, regulatory pressures have intensified. Far from becoming more streamlined, the FCA’s oversight appears to be expanding at the expense of economic growth which is at odds with the economic growth objective.
The survey also found that it is not just the volume of requests that firms are struggling with, but the nature of them. According to Figure 5.5 of the FCA’s Practitioner Panel Survey 2024–25, 66 per cent of fixed firms said that the information requested by the FCA is difficult to collect – an increase on the previous year. This adds yet another layer of burden, forcing firms to dedicate even more time and resources to administrative compliance rather than innovation or expansion. The effect is clear: less capacity for growth and slower economic development.
Compounding the issue, Figure 5.5 showed that almost half of firms feel the FCA does not provide sufficient time to respond to information requests. Firms are therefore being pressured to meet tight regulatory deadlines at the expense of investing in productivity and growth. This inefficiency is further aggravated by the FCA’s own delays - 63 per cent of firms reported do not review the information they receive in a timely fashion, meaning data often sits unused while businesses bear the cost of providing it.
Perhaps most strikingly, only 17 per cent of firms believe that the FCA makes good use of the information it collects. That figure represents an astonishing indictment of the current regulatory approach. Businesses are being drained of resources to provide complex data that, in many cases, appears to deliver minimal benefit. The result is a costly, bureaucratic exercise that undermines competitiveness and delivers little in return.
The FCA’s impact on the wider financial services industry and its international competitiveness paints an equally troubling picture. Figure 5.9 of the Practitioner Panel Survey highlights a sharp deterioration in firms’ perceptions of the regulator’s performance. There has been an 11 percentage point fall in the share of respondents who believe the FCA is improving outcomes for customers, a worrying sign that the regulator’s interventions are failing to deliver tangible benefits for consumers.
Even more concerning is the 27 percentage point decline in the number of firms that believe the FCA enhances the UK’s reputation as a global financial centre. This finding is particularly significant given that the Financial Services and Markets Act 2023 introduced a legal obligation for the FCA to promote growth and international competitiveness. Instead of strengthening the UK’s position, the data suggests that regulatory overreach is actively undermining it.
The survey also shows that only 30 per cent of firms believe the costs imposed by the FCA are proportionate to the benefits delivered. The conclusion is stark: the regulator is viewed as increasingly burdensome while delivering diminishing returns. Far from fulfilling its statutory duty, the FCA’s expanding bureaucracy is contributing to slower growth, reduced competitiveness, and a less dynamic financial sector.
Financial services firms are under intense and growing pressure to comply with complex regulatory demands, often for little discernible benefit. The constant flow of information requests, short response windows, and overlapping oversight structures all divert time, personnel, and financial resources away from growth and innovation. Instead of driving competitiveness, regulation is increasingly becoming a drag on productivity and investment.
Most worryingly, firms report that the FCA’s value has declined even after the introduction of its growth and international competitiveness objective. Rather than fostering a dynamic financial environment, the regulator’s expanding bureaucracy is stifling the very outcomes it was designed to promote.
If the UK is to maintain its position as a leading global financial centre, there must be a fundamental rethink of the regulatory framework. That means reducing the number of overlapping regulators, streamlining responsibilities and cutting back the regulatory burdens that weigh down businesses. A simpler, more coherent system would allow firms to focus on what they do best: creating jobs, driving innovation and contributing to the nation’s prosperity.