Britain is facing a crisis of confidence – a pervasive regulatory culture driven by the belief that whenever something goes wrong, no matter how minor, it must be regulated out of existence. This mindset, which seeks to eliminate risk at all costs, may sound protective, but it is profoundly destructive.
Eliminating all risk means suffocating growth, stifling innovation and undermining the dynamism that once defined Britain’s economy. The FCA’s Consumer Duty is the latest manifestation of this mindset: burdensome, vague and counterproductive, it hampers innovation, restricts choice and ultimately disadvantages the very consumers it claims to protect. The safest environment is always a graveyard, but Britain’s future depends on embracing calculated risk, not running from it.
Introduced in July 2023, the Consumer Duty is an expansive regulatory framework requiring financial firms to proactively deliver positive consumer outcomes. Marketed as a ‘paradigm shift’, it touches nearly every aspect of product design and client interaction, mandating firms to ensure product suitability, fair pricing, clear communication and robust customer service, especially for ‘vulnerable’ customers.
But is it helping? It’s still hard to say. FCA surveys show 90% of firms improved customer communications and 37% changed pricing for fairer value. But these snapshots lack context and fall short of a true cost-benefit assessment. Tellingly, the FCA has acknowledged the Duty’s burdens and has launched a consultation aimed at simplifying aspects of it, with change proposals expected later this year.
But is the FCA’s secondary objective – to consider international competitiveness and growth alongside consumer protection – even feasible? It comes down to what ‘success’ means. Real success means delivering better outcomes without choking off innovation or shrinking the industry. That trade-off is hard, and regulators must be honest about the costs as well as the benefits.
Yet the FCA’s reluctance to address that challenge is clearly visible in its broad definition of vulnerability – covering health, life events, resilience and capability – claiming that half the UK ‘will be classed as vulnerable at some point’. It suggests most adults need protection from everyday life, a new frontier in the bureaucratic war on personal responsibility.
All of this might be tolerable if the Duty were at least clear. Firms are expected to interpret nebulous concepts like ‘foreseeable harm’ and ‘fair value’, with the FCA as final judge. This lack of clarity breeds caution, risk aversion and inefficiency, none of which benefit consumers.
The impact on access to advice is already clear. Research from Lang Cat, based on 210 adviser interviews, found that 75% of firms report that the Duty has made it more difficult to serve clients with a low amount of investable assets, and as a result 50% of firms had stopped serving some clients altogether. Small firms dropped 17% of clients on average; larger firms dropped 11%. More than a third off-boarded clients completely. Others referred them to low-touch services or maintained informal relationships.
Clients with stable finances are now unviable to serve, as ongoing reviews make them too costly. We could see up to 1.5 million people lose access to professional guidance. Instead of protecting the vulnerable, the Duty is abandoning them.
But this was predictable. Frontier Economics, asked by the FCA in 2021 to estimate the economic impact of the Duty ahead of its roll-out, warned that firms could end up ‘playing it safe’ by pulling higher-risk products to avoid regulatory blowback. In fact, the report cautioned, ‘It is uncertain whether the [Consumer Duty] proposals will result in a net benefit overall – that is whether the balance of benefits and costs under the proposals is greater than under existing regulation.’
Indeed, the Consumer Duty is redundant. Britain already has one of the most heavily regulated financial systems in the world, with extensive protections governing consumer interaction.
Worse still, this comes at precisely the wrong moment. Britain urgently needs growth, and financial services are among our highest-performing sectors. Burdening them with vague, punitive regulation will only suppress innovation, deter competition and slow the economy.
From the East India Company and Lloyd’s of London to Monzo and Revolut, Britain has led the world in financial innovation. To let unaccountable regulators strangle that legacy in red tape reflects not only undue mistrust in the public, but also a dangerous pessimism about Britain’s future.
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