APPG urges overhaul of 'systemically flawed' UK financial conduct regulation

The All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services has published a 250 page report arguing that Parliament must "reclaim its role" in financial regulation.

The report concludes that the UK's system of financial conduct regulation is in "urgent need of fundamental structural reform" and calls on the government to undertake "a full, root-and-branch review of the UK's financial conduct regulatory architecture".

The report draws on a major public survey, a decade of Parliamentary debates, independent expert reviews on the performance of the FCA, testimony from victims and whistleblowers, and analysis of financial scandals.

The APPG warns that the government's current “deregulate for growth” agenda risks exacerbating systemic problems by weakening consumer protections when "the evidence shows those protections are already insufficient".

The APPG concludes that the recurring pattern of financial scandals in the UK is not accidental or isolated, but reflects deeper structural problems in the way financial regulation operates.

According to the APPG, repeated failures point "not to isolated regulatory mistakes but to systemic flaws in the regulatory architecture itself".

To address these 'systemic issues', the APPG is calling for the establishment of a Royal Commission into UK financial conduct regulation.

A Royal Commission is the highest form of independent public inquiry in 11 Commonwealth nations (such as the UK, Australia, and Canada), established by the Crown on government advice to investigate complex, high-profile, or controversial matters. They hold significant, quasi-judicial powers to summon witnesses under oath, compel evidence, and make policy recommendations, though they cannot prosecute criminal acts.

The APPG argues that "only a Royal Commission has the scope and authority necessary to address the full scale of the structural problems identified", and explains how a similar Royal Commission that has occurred in Australia has led to positive reforms in that country.

John McDonnell MP, chair of the APPG, commented: "This report brings together one of the most comprehensive bodies of evidence ever assembled on the failures of financial conduct regulation in the United Kingdom.

"Scandal after scandal has been treated as an isolated event, yet the same warning signs are ignored, the same regulatory failures occur, and the same devastating consequences are suffered by ordinary people. That is not coincidence - it is the product of structural weaknesses in the system Parliament created.

"The evidence presented here makes the case for a Royal Commission, or something similar, that can undertake a genuine root-and-branch review of financial regulation. Parliament must reclaim its role in defining what fairness means in financial services and ensure that the institutions responsible for protecting consumers are not just capable of delivering it, but are also motivated to do so in an unconflicted manner.

"We must also be clear that weakening consumer protections will not deliver growth. It will deliver more scandals, more victims, and deeper distrust. A strong regulatory framework is not the enemy of economic success - it is one of its essential foundations."

Associate professor Andy Schmulow, volunteer member of the APPG secretariat, added: “The catalogue of consistently poor conduct regulation performance in the UK is akin to what happened in my own country of Australia, where we eventually decided a structural overhaul of the regulatory framework was needed, by way of a Royal Commission.

"Whether Brits have a Royal Commission or use some other Parliamentary device is a matter for discussion; but what isn’t a matter for discussion is the need for an holistic, macro, tenacious endeavour to properly fix what’s wrong with your conduct regulation. If anybody’s in doubt of that, read the APPG’s report - the evidence from a wide range of stakeholders couldn’t be more conclusive.

"I recall the current CEO of the FCA responding to a question I once put to him about what the FCA was doing to combat the risk of regulatory capture. His response convinced me that financial conduct regulation in the UK is in need of as much scrutiny and accountability as Australia’s - you’ve got exactly the same structural issues that we have been wrestling with.

"It is noteworthy that prior to the establishment of Australia’s Royal Commission, the banks and their lobbyists, sections of the media and civil society, and the then Turnbull-Abbot government argued forcefully that a Royal Commission was not needed, would produce no discernible results, would be superfluous to the at least six major inquiries that had already been conducted into industry misconduct, would be a waste of money, would scare away investors, would lead to a diminution of trust in the industry in the minds of the public, would place an unnecessary administrative burden on regulated entities, would be excessively costly to the taxpayer, and so on. But in the aftermath of our Royal Commission, those who had opposed it uniformly agreed that the inquiry had been necessary, sobering, and cathartic.”