In an era of slowing productivity, the UK government has cast economic growth as a national mission. At the heart of this effort is a renewed recognition that financial services – long a powerhouse of the UK economy – must evolve to become an engine for sustainable, innovation-led growth.
Within this broader context, the Financial Conduct Authority has been entrusted with a secondary objective: to facilitate the international competitiveness and growth of the UK economy, particularly its financial services sector, over the medium to long term.
The FCA’s new role marks a significant shift in regulatory thinking, acknowledging that well-calibrated regulation can both protect consumers and help unleash private sector dynamism to promote economic growth. Insights from the recent FCA economic research competition offer a timely roadmap for how financial regulation, when aligned with the UK’s growth mission, can actively contribute to a more productive, resilient and inclusive economy.
Regulation as a growth catalyst
Research presented during the competition underscores a central theme: regulation has to be seen as a platform for innovation and competitiveness. The financial sector, which contributes over 8% of the UK’s gross domestic product and represents a significant source of employment and trade, has undergone transformative changes over the past decade. With the rise of fintech and cryptocurrency markets, innovation has often flourished in response to regulatory clarity and institutional engagement.
Case studies highlighted by Beauhurst exposed fintech’s development from 2015 until the introduction of the FCA consumer duty in 2023, as well as the equity fundraising shift, where capital that once overwhelmingly flowed to established firms has increasingly begun to support innovative start-ups. This realignment illustrates the power of regulatory frameworks to shape market behaviour and the capacity they will have to encourage investment into productive and high-growth areas.
However, the FCA must tread a careful line: enabling innovation while safeguarding financial stability. As the London School of Economics and Political Science’ Growth Lab observed, UK financial services productivity has stagnated relative to peers, in part due to post-crisis regulatory challenges. The challenge now is to recalibrate, ensuring regulation that both manages systemic risk and creates space to foster innovation.
Understanding risk in a new financial landscape
Another major insight from the competition lies in how risk is conceptualised in a post-crisis world. Fathom Consulting’s work provided a data-driven look at the evolving architecture of financial risk. Before the 2008 financial crisis, high interconnectivity and clustering among banks created systemic vulnerabilities. Post-2008 crisis regulation successfully dispersed this risk, but the financial network remains dense and complex, particularly as activity shifts from traditional banking to sectors like insurance and fintech.
This shift reinforces the need for updated, dynamic monitoring tools and a regulatory approach that understands the potential of non-bank financial entities to transmit or amplify shocks. It also highlights the importance of avoiding a ‘one size fits all’ model. Fintech institutions, as noted in University College London’s study, may offer consumers, especially low-income households, better access to credit. However, they also carry specific tail risks that current regulation has not fully stress tested.
Capital markets and competitiveness in a post-Brexit world
A critical component of any growth agenda is deep, well-functioning capital markets. Research from the University of Birmingham revealed that the UK trails behind the US and European Union in initial public offering activity, with high-growth firms increasingly favouring more flexible overseas markets. While the 2024 relaxation of rules for the Alternative Investment Market is a positive step, deeper structural issues remain, including high entry costs and burdensome regulations that deter both domestic and foreign listings. If the UK is to become the premier global hub for financial innovation, regulation policies must be responsive to market realities.
The research also addressed the UK’s shifting international positioning. The Universities of Edinburgh and Westminster reported that since Brexit, export competitiveness has declined, even as outward foreign direct investment surged into EU centres like Germany and the Netherlands. Small and medium-sized enterprises have led the charge, particularly through greenfield projects.
Policy responses here must be twofold. First, the FCA can play a vital role in simplifying cross-border investment approvals and improving the environment for international listings. Second, deeper co-operation between regulators and trade bodies could help amplify UK financial services’ global brand, especially in emerging fields such as green finance, digital assets and environmental, social and governance-aligned investment.
A forward-looking regulatory vision
What to take from the FCA’s competition is clear: the UK can no longer afford to view financial regulation in isolation from its growth objectives. A smarter, more agile regulatory environment that recognises the interplay between innovation, competition and systemic resilience is central to supporting the UK’s growth mission.
To that end, the FCA’s new secondary objective is a call to action. By embedding growth considerations into the regulatory DNA, the FCA can help reshape financial services, not only as a pillar of the UK economy but as a catalyst of long-term, inclusive and internationally competitive growth.
Andrea Correa is Senior Economist, Economic and Monetary Policy Institute, OMFIF.
Over the past three years, OMFIF has collaborated with EY to explore how to improve public finance management. This year’s project examines how governments can more effectively allocate public funds to support better fiscal, economic and societal outcomes. Find out more here.
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