Without Boundaries:

Society and public expectation is constantly in flux. Businesses have a perpetual regulatory cost burden, and the compliance landscape is increasingly complex.

With so many variables at play, how can companies chart a way forward? It seems near impossible to balance. It may feel that there is no clear-cut route forward, but, with the blurring of boundaries there is potential to explore and find new ways of working.

We can expect a fundamentally different approach to rule setting in financial services, as UK government and regulators take legislation currently enforced under an EU banner back under UK control. Parliamentary law making in the UK tends to be more iterative, favouring secondary legislation or delegated power, rather than working through technical committees following roadmaps and schedules set years ahead. The UK approach also means that technical details of some legislation are not always as widely reviewed as with EU’s more technocratic approach. This can require additional work for organisations to understand what’s on the horizon and to keep up with the detail.

Traditionally, the UK parliament prefers to set certain standards and headline objectives with an increasing amount left open for further interpretation, both in respect of the ‘common law tradition’ and the role of delegated powers. This contrasts with the detailed and technical instruction manual approach of Brussels, built around Civil Law. Those who set detailed legislation will be the industry regulators, the FCA and PRA (under HM Treasury), who can expect to see their remit and powers expand even further. There will be an increased role for government departments, and we are already seeing the material strengthening of existing bodies whose remit overlaps with financial services regulation, notably the Competition and Markets Authority (CMA) and Information Commissions Office (ICO).

As one of the most influential regulatory bodies in the UK, the FCA also have a history of seeking to set frameworks and guidance for compliance rather than a more prescriptive one size must fit all approach. In theory, this flexibility should work to the benefit to the UK financial services market, but the EU will be watching closely for any material divergence. Any relaxation could be countered politically or economically in a potentially ongoing game of one-upmanship, or in some areas resisted by industry who may assess the consistency with the EU to be more valuable than divergence.

In theory, regulatory costs are an equaliser since we all have the same burden so there is no competitive advantage to be had. In practice, this is far from true as large businesses benefit from economies of scale, and fintechs and start-ups use innovative tech and streamlined processes to lighten the burden. There are industry benefits to standardisation, in the same way as using the same plug sockets is efficient, but these benefits are more dispersed and are often harder to quantify.

Both legislative approaches offer different benefits for business customers and end consumers who, above all else, demand choice and flexibility. We have also seen that, from the consumers’  perspective, regulation can have a great impact on services offered. But the challenge for companies is often how to meet a wide variety of consumer demands for choice while balancing the cost vs risk return dilemma, and the increasing pressure of return on investment for capital expenditure.

The big question for businesses is – what outcomes are we seeking, and are we best placed to achieve these?

There are some regulations which are absolute, with serious financial and reputation penalties for any breaches. Others, presented by the FCA as principals, can be more flexible based on company objectives, culture and priorities. The answer to how to fit the myriad of regulatory directives and guidance for your company often lies with the risk appetite and operational design of the business.

The UK is a traditionally very compliant country. But trying to tick every regulatory box individually can often tie a business up in knots. Within this period of transition post Brexit and pandemic, is this our opportunity to find way forward to establish a more effective, flexible and innovative approach.

Over the last few years, companies have often turned to technology to help streamline and simplify products and services. And we have seen that the pandemic has incentivised this further with 97% of businesses saying they have sped up digital transformation programmes to help cope. But as regulation becomes as much about people, customer relationships, and company culture as process efficiency, by what standards can compliance be judged?

Based on EQ’s expertise and my own experience in working for both the regulator and the regulated, our Without Boundaries paper offers ideas, strategies, and support options to help you build a stronger, more flexible, regulated business. My top tips in each section highlight key areas to focus on. Some are “quicker wins” than others, but all can make a material difference to your business operations to reduce the burden of regulation and improve the quality of service you provide to your customers.

We explore these challenges in three pillars, so regulated businesses can consider how to build their positive action plans, identify ways forward and find sources of inspiration.