Briefing: Enhancing Financial Services Bill must make regulation work for growth

With the Enhancing Financial Services Bill, this week’s King’s Speech has put financial services reform back where it belongs – at the centre of the UK’s growth agenda.

The UK has a world-class financial services sector and insurance broking is a vital part of it. Brokers are trusted risk advisers, helping households and businesses access the protection they need, manage risk, recover from shocks and invest with greater confidence.

If the UK is serious about growth, it must also be serious about resilience – brokers sit at that junction, helping firms and households absorb shocks rather than be overwhelmed by them.

But resilience depends on having a regulatory system that protects customers while allowing good firms to compete, innovate and grow. Too often, regulation has become more complex, more costly and more difficult to navigate than it needs to be.

In the current regulatory environment, authorised general insurance intermediary numbers have fallen to an all-time low of 3,494 – a nearly 9% annual fall in a sector that contributes £26.1bn to UK GDP –  employs 132,000 people and arranges an estimated £150bn of premium. Unnecessary friction is not cost-free. It absorbs time and capital that could otherwise be spent serving clients, closing protection gaps and building businesses.

At the heart of a functioning market is regulation that is both pro-market and pro-consumer. Done well, it gives customers confidence that firms are properly authorised, complaints can be resolved and compensation is there if a firm fails. Those safeguards matter. But they work best when regulation is clear, proportionate and focused on real risk – not when it layers cost and complexity onto firms that are already doing the right thing.

The UK should be an attractive place to build, scale and sustain an insurance broking business. But slow authorisations and disproportionate compliance costs make it harder for start ups to enter the market and for established firms to invest in people, technology, new products and better service. When growth is a national priority, we cannot afford to make entry and expansion unnecessarily hard.

That is why this bill matters.

Better regulation

The reforms now heading to Parliament should be judged against a simple test – will they create a smarter, more predictable and more proportionate regime that supports growth while maintaining strong customer protection?

There are encouraging signs. The bill will reform the Financial Ombudsman Service to improve consistency and clarity in decision making. It will also reduce the overall burden of the Senior Managers and Certification Regime by 50%, while keeping the focus on accountability for the most senior figures. These are material steps in the right direction.

But the bill should also be used to advance other practical reforms that will make the greatest difference to competition, innovation and customer outcomes – shorter statutory authorisation timeframes, a proportionate principal permission for firms overseeing appointed representatives and a provisional licence regime for eligible start ups.

These measures are not about deregulation. They are about better regulation.

Regulation should act as an enabler, not a brake, and financial services cannot be asked to deliver growth while firms are left inside a framework that slows decisions, duplicates processes and creates uncertainty.

For insurance brokers, the bill could be transformation, both for insurance brokers and our customers. Brokers are resilience builders, helping SMEs manage risks, supporting vulnerable and non standard customers and bringing advice into complex decisions where price alone can lead to poor outcomes. That matters when 35% of business leaders say cost pressures have caused them to reduce cover and 12% say they have gone without cover altogether for certain risks.

As we see all around us, businesses are facing an ever more volatile risk environment. Cyber risk is now a mainstream operational threat, with 43% of businesses having had a cyber attack in the past year, but only 47% having any form of cyber insurance.

Flood risk is also intensifying, with 6.3 million properties already at risk of flooding from all sources, and that number is projected to rise to 8 million by 2050. For SMEs, inadequate flood insurance can be existential, with 40% never recovering after a catastrophic flood. Add supply chain disruption, terrorism risk and political and economic instability to the picture and the conclusion is clear. Against this backdrop, good advice matters.

Bill must deliver

That’s why regulatory reform is not an abstract city issue. For brokers, it is directly connected to their ability to help businesses and households understand risk, access suitable protection and build resilience. The Government has rightly recognised financial services as a key pillar of the UK’s industrial strategy and this bill is the vehicle to turn that ambition into delivery.

Parliament should resist turning the bill into a Christmas tree, weighed down with every financial services grievance. Its purpose should be clear – to put the key reforms on a statutory footing and make regulation more proportionate, efficient and competitive.

That means focusing on the measures that will make a practical difference to firms and customers – FOS reform, SM&CR simplification, clearer regulatory architecture, faster authorisations, appointed representatives reform and provisional permissions.

If the UK wants a world-class financial services sector, it needs regulation to match that ambition. The King’s Speech has created the opportunity. The Enhancing Financial Services Bill must now deliver it.