Welcome to today’s session of the Business and Trade Committee. We are looking at the topic of regulation in the UK economy and regulation for growth. Thank you so much to David, Sarah and Sarah for joining us this afternoon; I am grateful that you are with us today, not in Leeds. David, perhaps I could start with you. I think that you, like me, are old enough to remember a great book by Ken Rogoff and Carmen Reinhart from a few years ago, “This Time is Different”. You will remember their conclusion: that the financial sector has a long history of innovating around regulations and that liberalisation is often accompanied by lending booms that end badly. Do you think that today’s deregulatory announcements made by the Chancellor increase the risk of a financial crisis in future?

Thank you for inviting us to give evidence. In response to that question, we have been very careful in tailoring the proposals that have been announced today to make sure that they safeguard resilience while providing greater proportionality and efficiency in regulation. From a PRA perspective, we have been very focused on how we can support growth for a long time, but it has been turbocharged over the last couple of years since we got a new legislative objective around international competitiveness and growth. We are very clear in taking that forward that the biggest contribution to growth that we can make at the PRA and the Bank of England is to ensure that there is financial stability, because that is a necessary condition for sustainable economic growth.

Are you able to assure Parliament this afternoon that the regulatory changes announced today do not increase the risk of another financial crisis?

From a PRA perspective, the proposals that we have announced today have been carefully tailored to preserve what we consider to be an appropriate level of resilience while making our regulatory framework more efficient and proportionate and supporting innovation. I can give examples of where we have done that.

At this stage we are interested in the bottom line, which is whether the risk of a financial crisis has gone up today, or whether it is the same as it was yesterday.

From a PRA perspective, since the financial crisis we have built overall resilience in the system. Overall levels of banking capital, for example, have risen significantly, but they started plateauing in about 2019 when we reached the optimal level of capital that the Financial Policy Committee had set out for resilience in the banking system. That is optimal because it appropriately balances resilience with growth. All the changes that we have announced today, including our implementation of the international banking standards under Basel III, maintain that level of resilience within the system. Alongside that, last week the Financial Policy Committee announced that it was going to do a refresh of the analysis around the optimal level of capital to make sure that we were clear on what the optimal level is to appropriately balance resilience and growth.

I have not heard you say, “No, the risk of financial crisis has gone down.”

I can be very clear with you, if you would like. The announcements that the PRA and the broader Bank of England have made today preserve what we consider to be an appropriate level of resilience within the system that balances growth and resilience. The two go hand in hand. Financial stability and growth go hand in hand.

Just so we are super clear, the risk of a financial crisis has not gone up. It is a simple yes or no answer, really.

The risk of a financial crisis, from the PRA’s perspective, in banking or insurance has not gone up, because we have maintained the same level of resilience in the system.

Sarah Pritchard, you have also made some announcements. Do your announcements increase the risk of a financial crisis or leave it unchanged?

I would say, much like David has already covered, that the announcements made today are consistent with the direction of travel that we have been working on in the FCA, particularly since we set out our new five-year strategy in March. We are very supportive of all the FCA announcements that were made in today’s strategy. Critically, I think you have heard us say repeatedly, particularly timed with the launch of our strategy back in March, that this is the right moment in time to look at the calibration of the regulatory system. It is important, though, that there is a public debate around risk appetite. If we think about this from a consumer perspective—of course we have a significant consumer remit—we are prompting conversations around where that risk appetite should be set in relation to mortgages, for example. If we see greater numbers of people with access to mortgages, what is the risk in terms of repossessions in the event of an economic downturn? We think that this is the right time to have that conversation, but it is important that it is publicly debated and then supported.

There have been 250 financial crises in 66 countries since the Napoleonic war. Every single one of those was preceded by a period of financial liberalisation, during which politicians convinced themselves that this time it was different. Do you think that this time is now different from the period that led up to financial crises in the past? If so, how?

It is a great pleasure that we work alongside the Bank of England, whose primary remit is the financial stability remit. There is nothing in today’s set of announcements that causes me any different concern from that which David has set out. The one additional factor that I would like to highlight is that we have been talking through our strategy around acting proportionately and looking at regulatory burden. One area that we have been focusing on is where we can switch off data where we do not need it any more. We have been taking action to switch off data returns affecting 16,000 firms, for example, but I am also really clear that we need data to do our job. We need data from market participants so that we can manage market risk and the risk of harm to consumers, so it is about having the balance.

Will today’s reforms trigger an increase in lending to consumers?

Overall, I am really hopeful that the set of measures announced today will support the part of our strategy that talks about helping consumers navigate their financial lives.

Can you translate that for us? Does that mean that lending will increase or stay at a stable level?

If I take mortgages, for example, we are already having a discussion around the rule set that currently exists in relation to mortgages. We think that there is possibility to increase lending to consumers for mortgages, taking into account different types of financial history. That is signalled in today’s set of announcements. It is a discussion paper that we have already kicked off and we are very keen for views. We think that this is important. This question of risk appetite is an important question where there should be public discourse.

Could that be characterised as a lending boom that is about to unfold once these regulations are reformed?

I hope that you see that, throughout the set of regulatory reforms that we have been working on for some time at the FCA, we are guided by our statutory objectives. We have an overall objective to make sure that markets function well. We have three primary objectives and then a secondary one. With every piece of reform that we are working on, we are guided by that. We think that it is important that the market functions well. There needs to be market integrity, appropriate levels of protection for consumers and then, secondarily, international competitiveness and growth. That is how we are addressing all of our regulatory reform and seeking open views through our consultation process where we are taking those things forward.

How do you foresee the risk of a speculative rise in asset prices if lending increases?

If I go back to the importance of recognising that the financial system is not a risk-free system, there is risk currently. Markets change. You might have heard Nikhil Rathi, our CEO, talk about living in an area of predictable volatility. It is essential in those environments that regulators collectively have the data that they need to be able to do their job. Secondly, do they work well together in terms of sharing that information, so that, if there is market risk, interventions can be taken if necessary or rule sets recalibrated? One real strength that I see in today’s set of announcements, which reflect many months of work between all of us, is the way that we have been working through the set of proposals. They are all proposals that we recognise, or I recognise; I think David has said that he recognises them too. There is strength that can be taken from that. It is very important, though, that we all work through this public question of risk appetite and make sure that we are thoughtfully guided by the statutory objectives that Parliament has set us.

Is there a risk that asset prices will now rise if lending is increased?

We need to step through the reforms that are signalled today. You see volatility in asset prices driven through all sorts of global economic conditions. The international environment is changing. There are a range of different factors at play. Regulation is one aspect, but there is the general environment in which we all operate, in particular with the UK being a globally connected system. There is no one point that I would refer to, in terms of that package today, and say that that will cause any different sorts of market risk or volatility. If I go back to the importance of making sure that we have data to do our job and working well together, that is essential.

Are you satisfied that today you have both the data and the regulations that you need to stop a speculative lending boom and speculative asset rises?

On the data question, we are already doing an awful lot of work to look at whether we have the right data and are collecting it in a timely and proportionate manner. There is some further work that we are doing looking at the European legislation that we have inherited, AIFMD, that we are working on in the early part of next year. That will be quite critical in terms of where the UK should calibrate its data. That is already work that we were taking forward. Again, it underpins some of what you see in today’s announcements.

David, are you satisfied that after today’s announcements you will be left with enough controls to stop a repetition of the events that led up to the 2008 financial crash?

I am very satisfied that banks that are doing the bulk of the lending will be appropriately capitalised. The capital that they need to hold against individual loans will ensure that that lending is done in a prudent fashion.

Turning to a very different topic, Sarah Pritchard, the Financial Conduct Authority has announced earlier this week that you are going to pare back corporate transparency rules. This is something that strikes at the heart of the limited liability partnership. We give companies limited liability in return for transparency so that we can understand what is going on. I do not understand why this is being positioned as a measure to cut red tape, because companies have to produce the accounts. We just ask for them today to be sent to Companies House so that they can be made publicly available. Why is corporate transparency going backwards?

I think you are referring to the prospectus reforms that we have just concluded, as you say. I believe that they were put out formally this morning. That set of reforms is part of our overall package of reforms to ensure that wholesale markets and capital markets can thrive in the UK. We have changed the requirement for a further prospectus on further issuance, so nothing changes in relation to the information that needs to be available at the time of first listing. We have said that we have raised the threshold from 20% to 75% for a prospectus requirement for further issuance of share capital. That is, as you say, a significant shift. There may be situations in which companies choose to use a prospectus at a much lower level. We have taken the feedback into account carefully through the consultation process and believe that that was the right point to calibrate, thinking about all our objectives and the importance of our secondary objective in deciding where to balance the rule set. I should say that underpinning all of our work in relation to capital markets and wholesale markets is perhaps a slight shift in philosophy, one that has moved away from hard-edged gates and checks in advance of activity being taken, with checks made by the regulator, to one that is focused on disclosure and transparency. I agree with you that disclosure and transparency is really critical.

It sounds like you have just watered it down.

We are focused on making sure that investors can make their own decisions. As I said, there may well be situations in which companies will choose to use a prospectus at a lower level. We have not changed any of the requirements for first listing.

But for further listings you have.

We have.

How does that improve transparency?

We are saying that, for further listings, we believe that the right balance is struck by removing some of the grit in the system.

That grit is called transparency.

We are very clear that transparency is important. We are also very clear that investors can make their own decisions. The market abuse regime remains in place for all companies that are listed. There was broad support for lifting the level at which the requirement for a prospectus at the further issuance of capital was mandated.

We are obviously talking to different people, because I have not picked up that kind of ambition for less transparency. We want to see more, I think. We want to know that the limited liability regime has maintained its integrity.

Transparency is important. It is important to reflect the new prospectus rules alongside the existing market abuse regime, which will require companies to continue to make disclosures as needed, subject to that regime.

On the question of Shein, thank you very much indeed for your letter back. I am not expecting you to comment on that particular case. You have provided us with an assurance that, for companies such as Shein, as indeed for any other company, there will not be, despite what you have just told us, any watering down of disclosure requirements around labour standards, for example.

As you say, I cannot go into the specifics of an individual case. The requirements on in terms of a prospectus for initial listing are unchanged. The other important thing, and this is a point that has been touched on earlier, is that we believe that high standards are a good thing for the UK. High standards support sustainable growth. When there is talk about regulatory recalibration and reform, we are guided by our statutory objectives: market integrity and making sure that markets function well. We have repeatedly said that this should not be looked at as a race to the bottom. I think that I gave you my assurance that, in relation to the prospectus reforms that you have talked about and the previous correspondence that we have entered into in relation to that company, there is nothing that has changed as a result of today’s announcements.

You will not be browbeaten by the London stock exchange, which for understandable reasons is seeking more companies to list, into weakening reporting or disclosure standards?

As a regulator, it is important that we are guided by our statutory objectives, the objectives that Parliament has given us. Sometimes we have to make difficult and unpalatable decisions. I can assure you that, notwithstanding the real focus on growth in our strategy, we talk about deepening trust, rebalancing risk, supporting growth and improving lives. It is that whole ecosystem that works together that will enable us to be successful in our strategy. It is no one element of that at the expense of the others.

Good. This should be an interesting test case, then.

I refer members to my register of interests. Sarah Cardell, hi. Thank you for being here. How do you see and manage the tension between maintaining free and open markets and going for growth?

Thank you for the opportunity to come this afternoon. In principle, there is no tension between those two objectives. If we think about our statutory mandate at the CMA, it is about promoting competition and protecting consumers. Both those things are foundational to driving economic growth. We know that open, dynamic, competitive markets will deliver greater levels of investment. Innovation should deliver higher levels of productivity. Those foundational principles are clear. Likewise, consumer protection builds trust and confidence in markets and that spurs spending and creates a level playing field. So far, so good. A lot of it, though, also comes down to the choices that we make about the work that we choose to do and, importantly, how we go about that work. That has been the laser focus of our real drive to support the growth mission, without in any sense stepping away from that primary mandate to promote competition and protect consumers.

What I am worried about, particularly with the very quick exit of your prior chair, is that, if you read the FT or any other newspaper, it seemed to be a message from Government to say, “If you are in big tech or have dominant market share, we are going to go more lightly on you. As a dominant player, you have more leeway to run competitors off the road and buy them.” That stifles innovation and free competition. I am looking for you to prove me wrong on that, because that was certainly a message widely spoken about in the financial press.

We have been very clear. I have been very clear personally, our new interim chair Doug Gurr has been very clear and the Government have been equally clear, including through the strategic steer we have had issued in May this year, that protecting consumers and promoting competition are still the CMA’s priorities. We should do that with a growth-focused lens, but that does not mean stepping away. It does not mean allowing anti-competitive mergers, stepping back from competition enforcement or stepping away from our new functions to deliver effective competition in digital markets. The clear message coming from me, Doug, Government and the steer, and in the actions we are taking, reflects that. To pick up on some of the themes from Sarah and David, that can be done in a way that supports growth, is proportionate and is delivered quickly, so all the elements. I have talked quite a bit about my four Ps framework—pace, predictability, proportionality, process—to deliver growth and engagement. Those are key. The CMA has a real opportunity here in the UK to deliver a step change in the way we go about our work, which improves business and investor confidence, which is absolutely critical. The vast majority of businesses in the UK are doing the right thing by their customers and competitors, but it does not mean that we are sacrificing at all the important focus on ensuring that drive for competitive markets.

In terms of structural versus behavioural remedies, could you say a little about where you are headed or whether there is any change in direction?

That is a really good example of how we are thinking about the choices that we make and how we go about our work. If you think about merger control, the vast majority of mergers are entirely unproblematic from a competition perspective. There will be a handful of deals every year that we look at that raise material competition concerns. Of that handful, some of those concerns can be addressed through remedies, whether those are structural or behavioural. In a minute number of cases, a prohibition will be required, because it simply cannot be resolved through remedies. We have said—our work on the VodafoneThree merger is a good example of this—that we need to be open to a full set of remedies to look case by case. What are the issues? What are the concerns and what are the remedies that are appropriate to address those? We have been very clear, again, that we will only accept remedies that are fully effective in addressing our concerns. With something like the VodafoneThree example, we saw a merger where the parties had put forward very substantial evidence of investment benefits that could flow from that deal. We thought that the evidence on those investment benefits was pretty strong. Where we had doubts was about whether there was certainty that that investment would actually flow through, so we put in place remedies—working very closely with Ofcom, using that regulatory regime—to lock in the commitment to deliver those investment benefits.

I worked in M&A for 24 years and I am really spooked by anything that lightens up on the structural remedies, because M&A exists to reduce competition. If we are heading towards, “Trust us, it is all going to be behaviourally sorted,” that might be so for one or two years, but structurally you have lost a competitor. That causes a lot of problems for the market and, by extension, for the consumers. I really hope we are sticking to our structural remedies where they are required.

I would agree. We have always said—and I do not think that we have moved away from this—that there is a high bar for accepting behavioural remedies. They will be appropriate in certain cases, and VodafoneThree is a good example of that, not least because you have a sectoral regulator in place that can carry out that ongoing monitoring exercise to ensure compliance. That is a big factor for us when we normally look at behavioural remedies. In another couple of cases we have looked at this year, namely the Synopsys-Ansys deal and the GXO-Wincanton deal, we have required structural remedies for precisely the reasons that you say. We are undertaking a review at the moment of our approach to merger remedies. It is important that we have an open mind here, but be in no doubt—I really want to reassure the Committee on this fact—that there is no watering down of our requirement to see effective remedies.

Why do you think the Chancellor had you in her sights when she was concerned about regulators not contributing to UK growth? In what way were you impeding the growth of our economy?

There was a broader question about the regulatory environment across the UK. Is that delivering an environment where businesses and investors have confidence that the UK is a good place to do business and invest? The CMA plays a part in that.

Your behaviour in the past as a regulator had somehow negatively affected investor confidence.

There was a perception in some quarters, to take the example of merger control, that the CMA had become the merger policeman of the world and was taking an outsized approach on mergers. When you look at the facts, that is not the case. When you look at the number of deals that we blocked year on year, it is a handful year on year. It is not out of kilter with the approach taken in other jurisdictions such as the EU and the US.

You had to take action to affect the perceptions, rather than change the material nature of what you do.

The way I would put it is that there was a real perception and that perception was creating a real risk. I spent quite a bit of time last year talking directly to businesses and investors to test this for myself and I heard this message quite clearly. That is the reason why, in part, my focus over the last six months has been so much on how we go about our work through the four Ps framework. That is what we can do to give assurance that we will move with pace, be proportionate and be predictable, but, to the earlier question, be in no doubt that we will take action where we see concerns. We are not watering down our approach, but it is important to give that confidence about the regulatory environment. The UK is actually incredibly well placed to deliver that.

To follow up on that, I will perhaps go to Sarah Pritchard. The UK has the lowest levels of investment in the G7. When I speak to businesses, they say to me, I am afraid to say, that the CMA and the FCA are part of the problem with that. Do you see yourselves as part of the problem? If so, what are you doing to fix it?

It is quite right that we are focused, as the FCA, on measures that we can take to support growth. We are clear that we can do that in several ways. Do we have the regulatory framework that creates some of the infrastructure for some of the investment decisions? You might have seen us really push forward on creation of a new private intermittent securities and capital exchange system called PISCES. Do we have the architecture and infrastructure to enable companies—they are staying private longer—to raise capital, hopefully choose to stay in the UK and maybe consider choosing to publicly list? We have a role to play in creating the environment for that. Regulators also have a role to play in how they operate. Do we have the regulatory certainty and predictability? Are we operationally efficient? Do we create the space for experimentation? You may be familiar with our innovation services that we have at the FCA. We have a really good track record and we have really scaled them, particularly reaching into AI, in recent months. We have supported over 1,000 firms through our innovation pathway services. Our data shows us that those firms that enter those innovation pathway services are 50% more likely to receive funding. On average, they will raise 15% more capital. That is something that we can do that will help firms thrive and create investment.

Do you think that there is a perception problem? Sarah Cardell talked a bit about speaking to investors when she came into the role and trying to understand that. Do you think that you have that? If so, have you tried to understand what that is?

It is very important that we are out speaking publicly to different groups of stakeholders around the work that we are doing and seeking to test whether it is calibrated in the right way. It is important to reflect, particularly if we think about global markets within the UK, that we do that internationally and are speaking to our firms, some of which are global in nature and some of which are domestic in nature. I hope that you have seen that where we have had really significant regulatory reform, the FCA has been doing an awful lot of convening and running policy sprints. Our work on creating a new form of retail investment advice, targeted support, is a really great example of the approach that we have taken to develop that rule set. There are clearly other factors at play in relation to investment decisions, but it is important that regulators are out listening. It is important that we create the right regulatory framework. It is important that we also take the step back and think about where the other aspects are that might be in play, such as skills, training and financial capability. What is the whole ecosystem and what is our role within that?

You take some responsibility for investment in the UK.

It is very important. One thing you might have seen in the strategy set out today is the FCA, alongside the PRA and the City of London, is putting its support into the Office for Investment: Financial Services, which is otherwise simply known as the concierge service. That is a really great example of us recognising that the FCA has a role to play and putting resources behind that.

Do you feel like you are trying to tackle the perception problem for investors? How are you going to track that? Are you going to measure it?

We have a real responsibility, but also a real opportunity, and not just individually. Sarah, David and I were on a panel a couple of weeks ago speaking to a capital markets audience. There is the opportunity that we have as the UK to tell a really positive story about our joined-up approach and the pro-business and pro-investment environment that that creates, without any of us stepping away from our respective statutory duties. That shifting of the dialogue is hugely important. There are a couple of other things that I would say from a CMA perspective. We have been speaking a lot to stakeholders. We hear a lot of calls also for the CMA to do more to help unlock opportunities for investment and growth. I know that procurement is a big area of concern for the Committee. That is something we hear repeatedly. How can we help Government in that space? We are providing advice on defence. We have our market study in relation to infrastructure for road and rail. To your question, measuring impact it is key. We need to not just talk the talk, but walk the walk and deliver. We already have a well-established framework for looking at our direct impact. We are working harder on that, also thinking about indirect impact. Also, there is the feedback that we hear directly from stakeholders in terms of their engagement and experience of working with the CMA and that wider perception of the UK regulatory environment and the role that the CMA has to play in that. Those are all things that we should be held to account on. We will be reporting on that. We have just covered a framework for that in our latest annual report and you should expect to see more from us on that.

To follow up on measuring, pace, particularly around innovation, is one of your four Ps. It is really vital. Again, it is a criticism I hear, if I am being honest, about regulators in this country. Are you measuring that? What does that look like, so we can understand that you have made a significant impact there?

Pace is key. It depends on the particular project and investigation in question, but we have introduced, for example, KPIs on our merger control process to shorten the length of the phase 1 process. As I said, most mergers do not raise competition issues, so we want to get those to clearance as quickly as possible. We will be looking at end‑to-end impact on some of our lengthier competition investigations and moving in a more agile way. Sometimes we will look to resolve cases without needing to go to a full and final infringement decision. We will take other cases to an infringement decision. We will litigate them through the courts, because that is the right thing to do, but reporting back on pace overall across the different areas of our work, absolutely.

On innovation, Sarah Pritchard, the criticism I often hear, to be honest, is that there are businesses that are trying to do something that is perhaps slightly outside the norm and often it takes a long time for them to receive any kind of feedback on that from you. Is that a criticism you recognise and something you are trying to improve?

I recognise some of the historic issues that we have had around our speed of authorising new firms and applications. We have invested a significant amount of effort in the FCA over the last few years to really reduce the timeframes for our authorisation decisions. Our metrics are tracking 99.1%. All of our statutory metrics are being hit and today you might have seen some announcements for some further shortening, in order that we can show that we are able to bring and authorise those new firms to market quickly. When we are thinking about authorising firms, it is important that we maintain our standards. We see what has happened in years gone by, where there have not been strong standards taken at the authorisations gateway. We have seen that resulting in consumer harm, and the difficulty in acting once that harm is systemic. We talk about speeding up our authorisation decisions but, much as Sarah has said, this is not about watering down those standards. It is about working with firms to say, “This is what good looks like. How can we help you?” We have just expanded our pre-application support service, so that we can put real human beings in front of prospective applicants and talk them through the process. Separately, it is around enabling the safe space for experimentation. The way that financial services operate has changed significantly in the last five years and will continue to change and evolve. That is where some of our technology innovation services are world-leading. Not only do we have our domestic innovation services, but we are one of the founding members of the Global Financial Innovation Network. How can we enable the safe space for experimentation, particularly around use of AI? We have an AI laboratory. We have an open set of applications at the moment and a supercharged sandbox, which is a joint partnership with Nvidia, to enable firms that want to test proofs of concept before they even come to us for authorisation.

We have heard at this Committee that UK firms struggle to access scale-up finance, and it is not a new issue. How can our regulators, and indeed the Bank of England, support UK scale-up businesses to grow?

It is really important for growth and resilience that firms can build, grow and scale up, as you say. There are a couple of things I would point out. As part of today’s announcements, working with Sarah and colleagues at the FCA, we have announced a scale-up unit, so we can support firms, fintech firms, but also mid-sized firms, in growing. We will put in place specific measures so they know who to talk to, can understand the regulatory environment and can get support in navigating it.

Is that for investors or firms?

That is for firms. Speaking from a PRA perspective, those are the firms that we regulate. On scaling-up from a banking perspective, we also announced today a couple of things that will significantly support mid-sized banks in growing and being able to compete with larger firms. The first is a much more efficient way of achieving model approval, which enables them to have more risk-sensitive capital requirements, so they can lend more, support households and businesses more, scale up and compete with the large firms. We also announced thresholds for our resolution regimes. That was my colleagues in the Bank of England, in our resolution authority, who announced new thresholds for when bail-in capital would have to be held by firms, supporting those mid-sized banks when scaling up and competing with the larger institutions.

Is there anything from a wider investment perspective that you are looking at? We are talking about a global market. We are losing scale-ups to international markets.

For example, today we confirmed our plans for implementing the international banking standards, known as Basel 3.1 in the UK. As part of that implementation, we put in place specific calibration, diverting from the international standards, because the UK‑specific data told us it was appropriate to do so, for lending to SMEs, lending to infrastructure finance and trade finance, all of which will support greater investment and scaling up—not just of financial firms, but lending to support the growth of corporates as well.

Are there metrics that you are trying to hit in year 1, year 2 or year 3, having implemented that?

We have an extensive set of metrics reporting against our competitiveness and growth objective. We published our last report in June and will continue to report on those metrics going forward.

Is there anything else that you would like to add from either an FCA or CMA perspective?

Very briefly, from a CMA perspective, the key thing for scale-ups is making sure that we have the conditions of open, dynamic, competitive markets that are conducive to scaling up. We hear that a lot, for example on regulatory barriers. We have a role in helping to shine a light on those regulatory barriers. I mentioned procurement as one example. Our digital markets work is a good example. You have a lot of UK firms that are part of a wider digital ecosystem. Whether it is in terms of issues around access to data or interoperability, there are huge opportunities for us to build competitive scale in the UK that can then create globally competitive companies. We have an important role to play in that in really helping, working with Government and working with us, to create those conditions of effective competition.

I cannot answer that question directly here, but we are engaged in plenty of research about how our regulation can contribute to growth and all the supporting factors, including attracting investment to the UK. I hope that, going forward, that will put us in a position to give you a more direct answer to that question.

It is a combination of a number of different interventions. You have heard from colleagues on either side of me around the financial markets and the financial system. From my perspective as a cross‑economy agency, we are looking at creating those conditions. We have had a lot of conversations with private equity and venture capitalists about the opportunities to invest in the UK and how we free up those markets to make them open and competitive and keep that talent and that scale in the UK. That is the other important element.

Yes, greater investment, certainly.

I was very struck by something that the Institute of Chartered Accountants of Scotland said to us when we spoke at one of our roundtables. It says that, in its view, robust, proportionate and purposeful regulation, accompanied by regulators with the right powers, can create the confidence and certainty needed for investment and growth, rather than acting as a barrier. I think we would all broadly get behind that. What I think it is driving at is that you need to find a sweet spot between being overweening and overpowerful and being too laissez-faire and, in effect, paper tigers. Where do you think you are on that spectrum, David, if I could start with you? How are you doing? Are you the tyrants or the paper tigers?

Over the past decade to 15 years since the financial crisis, we have built resilience in the system, which enables us to ensure that we have the financial stability that will underpin growth. Now we have the opportunity to make our regulation efficient and proportionate. To your point, we have a sensible and appropriate level of resilience within the system, but there are now opportunities to look at what we have done and make it more efficient to support firms growing. On our side, I have mentioned a few examples. We are putting in place what we are calling a strong and simple regime for smaller banks, which basically means that they have the same level of resilience as larger banks, but through a much-simplified capital regime, so it is cheaper, clearer and easier to comply. It gives them greater certainty so that they can invest and plan their strategies accordingly. I mentioned some of the changes we are making to support mid-tier banks’ scale-up. That is all about making sure that we maintain resilience by ensuring that we are efficient and proportionate. Sarah has already talked about the approach to artificial intelligence, and we have a lot of shared endeavours going on between the FCA, the PRA and other regulators. We are taking a flexible approach to regulation from the PRA perspective. It would be easy to rush in with rules that would be overburdensome and constrain innovation. We are having a dialogue with industry so we can understand the risks and how much is covered by our existing regulation and consider whether we need anything to supplement that in a targeted fashion. So far, we have not concluded that we need to take additional steps, but we are watching very closely, because we think our existing regulatory structure appropriately captures the risks at the current time.

Sarah Pritchard, you are trying to walk a bit of a tightrope. We talk about responsible risk taking. There is a natural tension within that. How do you think the FCA is doing? I have heard criticism that you are encroaching into areas that might not seem immediately obvious for you. You are touching on things that I would have thought came under contract law or even criminal law, around bullying and harassment in the workplace. You also seem to be putting quite an emphasis on ESG, the environmental, social and governance guidelines, which defence companies say is causing them problems when they try to scale up at this time of crisis.

If I take the last point first, you might have seen that back in March this year, we issued a public statement because of concerns that our rules were preventing investment decisions by companies, particularly in the defence industry. That statement, which I encourage anyone who is particularly interested to take a look at, very clearly explains that our rules do not limit that. It is about disclosure and transparency. There is a slightly technical area. If there are benchmarks that are referencing the Paris climate agreement, there are restrictions on including investments in certain types of weapons. Absent that, our regulatory framework is permissive, but focused on disclosure and transparency.

Just to back you up there slightly, you mentioned certain types of weapons, so you are involving yourself in the arms business. Defence things go bang and we require them to keep ourselves safe, but you seem to be involving yourselves in that. Do you think that that is within your remit?

I am very happy to follow up with more detail on the specifics of that publication that we put out in March. It is quite technical and linked to some of the benchmark rules, but I am happy to follow up.

Going back to my point about paper tigers, this looks great on paper, but is this message getting through? If it is very nuanced, technical and difficult, is that reaching the ground where the decisions are taken?

That is exactly why we put out the statement in March. Sometimes firms will say, “Your regulation is getting in the way of x or y.” We are really listening to stakeholders where we are hearing that. We are taking a really in-depth look and sometimes finding that it is not actually our rule set. If I give you another example, in the work that we are doing to hopefully drive a greater culture of retail investment in the UK, we have set out landmark reforms around what we are calling targeted support, to enable firms to nudge or push consumers towards investment decisions and decisions around their pensions in circumstances where the current rule set, much of which is inherited from MiFID, does not permit that. We have also heard, in the context of really deep-diving with stakeholders on what is getting in the way, that our retail disclosure rules that require risks before benefits and certain language are getting in the way. We have taken a look at that, and actually it is not a requirement of our rules; it is industry custom and practice that has developed over time. We are taking stock. As we seek to reform targeted support, which we hope will support a greater creation of retail investment culture, we are also looking at how we can help to bust those myths and address those perceptions. Regulation will often be technical. Sometimes it is misunderstood. It is very important that we are explaining clearly what the scope of the regulation is and is not. When we talk about recalibrating risk, we are really clear that some of these decisions are absolutely ones for Parliament and for public to set the appetite on. It is by having that public conversation that, if there is a change in the balance of risk, that risk appetite will endure.

We would be interested in seeing that follow-up correspondence. Thank you for that offer.

This is for the CMA. I am very interested in the situation that is going on in the business energy market at the moment. I think that many people feel that this is not a market that is functioning. While there is competition, the question mark would be next to whether there is real competition and how it is benefiting consumers. We have limited suppliers. We have price comparison sites owned by the same people, with little transparency around that. We have unregulated brokers, and then the good ones are swimming around in a shark tank, trying to make the best of it. How are you regulating to protect customers by thinking about what your role is in looking at markets like this, which from the outside are clearly failing?

Our role is a cross-economy role as the competition and consumer agency, so we do not have a sector-specific focus in the same way. I know that you have Jonathan Brearley coming for probably a deep dive on energy in the following session. We work very closely with our counterpart regulators in some of those regulated sectors; energy is one of those and we will look at the overlap areas. Is this an issue that falls within a statutory regulated remit? Does it not? What is the competition? What are the consumer-facing issues? We do not have live work active in that space at the moment, but it is something that we will take into account in the broader mix. More generally, our focus is that we have to look at and prioritise the sets of issues. We will get feedback from stakeholders, consumer groups and business groups. We are constantly adjusting and setting a course on what the most pressing and priority areas are for us to take action on. Again, I am very happy to take any follow-up in terms of the specific feedback that you have on that market, and maybe we can pick it up after the following session as well.

That would be very helpful.

To follow up on that a little bit, one of the other criticisms we hear is about layering. You talked about speaking to your counterparts. This is one for all of you: how many conversations do you have with your colleagues and other regulators about situations where the regulation that you come forward with makes sense in itself but, when added to Ofgem’s and others, suddenly becomes prohibitive and an unnecessary pressure on business? Do you have those conversations? Do you see it as your responsibility to try to fix that problem?

Absolutely. It is a key responsibility for all of us to make sure that we are joining up as much as we possibly can. At the end of the day, from a business or a consumer perspective, frankly it does not matter which agency has responsibility; you just want to know that things are working, that there is no duplication and that it is operating effectively and efficiently. What does that mean in practice for us at the CMA? We will be working directly bilaterally with other regulators where we have an overlapping interest. A good example with the FCA recently is the work that the FCA had done in relation to digital wallets. We have then picked that up through our digital markets investigation, which we are currently looking at in relation to mobile. I know that we have been working together on motor insurance. That is another good example. We work very closely with Ofgem and Ofcom. There are many examples of that. I am happy to go into details.

Talk us through what happens where there is a conflict and a trade-off to make. Business does not say to us that we have a bunch of anti-growth regulators, you will be delighted to hear; business says to us that we have one regulator doing this, another regulator doing that and then another Department, generally DEFRA, doing something else over here. It is really difficult for business to understand how conflicting trade‑offs get resolved. When you have, say, a conflicting regulation with Sarah, but actually it is in both your interests to pursue that regulation, who do you then call to get the trade-off resolved?

I have two quick points to make. I am sure that Sarah and David will want to come in. There is one thing that is about enabling businesses to better navigate those overlapping regulatory remits.

That is really time-consuming and expensive for them.

It is very complicated. We have, in particular, the digital regulation co-operation forum, which is the FCA, the CMA, Ofcom and the ICO. One real priority of the DRCF is to improve the ability to navigate that system. We have recently run an innovation hub.

That is just putting the burden back on to businesses to educate themselves more and understand the labyrinth that they are in the middle of.

No. To give an example, we have had a hub where businesses have been able to come to us through a single point of contact, the DRCF. They do not have to work out whether it is a competition issue, a financial conduct issue or a privacy issue. Come to us and help us with the answer, and then we do that triaging effectively.

As public servants, where do you go when your regulations are in conflict and someone needs to take a decision on what Parliament meant? Where do you go with that kind of conflict?

Principally, the responsibility is on us to resolve that. Again, an example from CMA’s perspective is the work we have done around competition and privacy.

That cannot be possible all the time.

We have the DRCF. RIO is another opportunity. David, you might want to come in.

We have a lot of engagement, especially with the FCA and all the other regulators. With the FCA, we have specific mechanisms for us to make sure, when we are developing proposals—we have done joint proposals in areas such as operational resilience, remuneration and our senior managers regime—that we can escalate within our organisations. Then, for example, Sarah’s CEO, Nikhil, sits on the PRA board, and Sam Woods, my CEO, sits on the FCA board. If there are issues to resolve, we can resolve them at the most senior level, so the proposals we put out have already resolved any tensions or differences by the time that industry has to engage with them, even at consultation stage.

That sounds like a magnificently harmonious process. What has been striking about the evidence that you have all just given is that none of it entails ringing up a Minister.

If I may come in with an example, I was going to say that sometimes there will be things that are not capable of resolution. A really good example is around targeted support and the work that I have talked about on retail investment advice. We have heard from firms, as we have really deep-dived before we have even set the rules out for consultation, that they are worried about the number of consumers they can contact because of GDPR and data protection regulation. We involved the Information Commissioner’s Office in our sprint work, where we convened people together to help design the rule set. We have realised that we cannot actually solve that through this mechanism and through writing joint guidance. We have taken that measure in other environments, where we have done joint CEO letters between the ICO and the FCA to give regulatory comfort to make the most of the rules. In this situation, we say, “There is something that we cannot solve. We believe that it requires change to the privacy and electronic communications regulations, so that is a matter for Government to adopt and take forward.” We have surfaced that quite explicitly in the public consultation, where we have said, “Here is our rule set around targeted support. We recognise that there is an issue that is in conflict with the strategic direction of what we are seeking to achieve.” That, therefore, is for Government and, hopefully, Parliament to resolve through legislation.

It is probably another good example. Sarah will speak from the FCA perspective. We have taken quite a lot of action in the sector, in particular around leasehold properties, but we recognise that there are gaps in the legislative framework. We have been working very closely—this goes to Sarah’s example—to highlight those gaps and recommend to Government what further action needs to be taken. Part of our responsibility is to identify that we can only go so far with our current statutory powers.

That is an issue that we have raised many times.

That is very useful. Sarah, do you have anything to add?

There may be aspects within our perimeter. It will depend on whether there are regulated firms in that environment. In our strategy we are rightly prioritising financial crime and the steps we can take, using data and technology and alerting consumers. As Sarah says, that is a specific area where there will inevitably be gaps in the regulatory remit. There may be a limited element that we can intervene on.

That is all we have time for today, I am afraid. The clock was slightly against us, but thank you very much for a very quick canter through a very wide agenda; I really appreciate your evidence. Thank you for your time.