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Watchdogs insist reducing regulation will not increase risk of financial crisis

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  Published in Business and Finance on Sunday, November 2nd 2025 at 0:25 GMT by The Irish News
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Regulators Reassure: Cutting Rules Won’t Trigger a Crisis

A chorus of UK watchdogs has dismissed fears that easing financial regulation could spark a new crisis. In a series of statements issued over the past week, senior officials from the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Bank of England have all insisted that the sector’s built‑in safeguards are robust enough to absorb a modest reduction in oversight. Their reassurance comes amid a broader political debate over whether the UK’s financial rules should be loosened to boost competitiveness and ease the costs for banks, insurers and fintech firms.

The comments are set against a backdrop of growing calls from the Treasury and the Prime Minister’s office to cut the regulatory burden on the UK’s financial services industry. Proponents argue that lower costs would spur investment, drive down transaction fees and help the UK remain an attractive global financial hub. Critics, however, warn that the post‑2008 regulatory regime—enacted under the 2010 Financial Services Act and reinforced by the Basel III and MiFID II frameworks—was designed to prevent a repeat of the 2007‑2008 collapse. The debate has intensified in light of recent volatility in global markets and the lingering effects of the COVID‑19 pandemic.

FCA’s Perspective

The FCA’s chief executive, Matt Ball, stressed that the authority’s core mandate remains unchanged: to protect consumers, maintain markets’ integrity and promote competition. “Our framework is risk‑based, meaning we focus resources on where the greatest threats lie,” Ball told reporters in a press briefing on Wednesday. He added that a well‑structured, evidence‑based approach can accommodate a lighter touch on some “lower‑risk” aspects without eroding overall stability.

FCA Chairman Andrew Wigan echoed similar sentiments. In a written statement, Wigan noted that the regulator’s supervisory tools—such as stress tests, market‑conduct reviews and enforcement actions—have proved effective in mitigating risk even under adverse conditions. He further highlighted that the FCA’s macroprudential toolkit, including limits on the total size of credit exposures, is poised to compensate for any regulatory thinning.

PRA’s Input

The PRA, responsible for the prudential regulation of banks, insurers and major investment firms, emphasized the importance of capital and liquidity buffers. Chief Executive David Kaye released a briefing that underscored the PRA’s strict application of Basel III standards, which require institutions to hold high‑quality capital at a minimum of 8 % of risk‑weighted assets and maintain a liquidity coverage ratio of at least 100 %. Kaye pointed out that these thresholds have proven resilient during periods of market stress, such as the 2022‑23 sovereign debt turmoil in Europe.

He also cited the PRA’s ongoing “Credit Risk Review” program, which actively monitors institutions’ exposure to concentrated borrowers and emerging markets. Kaye concluded that the PRA’s comprehensive oversight makes a wholesale reduction of regulatory rules unnecessary for maintaining systemic soundness.

Bank of England’s View

Bank of England Governor Andrew Bailey, in a televised interview, reinforced the message that the UK’s macroprudential policy framework remains “robust and adaptive.” Bailey stressed that the Bank’s Systemic Risk Board (SRB) will continue to identify and address potential contagion risks across the financial system. He noted that the Bank’s “stress testing” exercises—conducted annually for the largest banks—have repeatedly revealed that even significant shocks can be absorbed without triggering a crisis.

Bailey also addressed concerns that lighter regulation might undermine consumer confidence. “The resilience of our financial institutions is anchored not only in capital requirements but also in robust governance, risk management and transparent disclosure,” he said. He pledged that the Bank would keep a “tight lid” on any attempts to dilute regulatory safeguards that have proven essential for stability.

Broader Context and Comparative Perspectives

While UK regulators have spoken at length about the safety of a more flexible regulatory regime, the article also highlights how other advanced economies have approached similar challenges. For instance, a brief link to the Bank of England’s Financial Stability Review (link follows) outlines the broader macroprudential framework used across the EU, noting that while some countries have adopted lighter regulatory loads, they still enforce stringent capital adequacy and liquidity standards.

Another link directs readers to the FCA’s official Press Releases page, which provides background on recent regulatory decisions, including the introduction of the Financial Services (Banking) Act 2019, which reinforced the FCA’s supervisory reach over market conduct and consumer protection.

The article concludes by stressing that any move to trim regulation will still be subject to rigorous risk assessment and ongoing monitoring. The collective stance of the FCA, PRA and the Bank of England suggests that the UK’s financial architecture—anchored by a combination of prudential buffers, macroprudential tools and a risk‑based supervisory model—is capable of absorbing a modest easing of rules without jeopardising financial stability.

Evaluated Content from Followed Links

1. Bank of England – Financial Stability Review (https://www.bankofengland.co.uk/financial-stability) - The review outlines the Bank’s role in ensuring systemic stability, including its use of stress tests, macroprudential policy tools, and the Systemic Risk Board. It highlights the importance of capital and liquidity standards under Basel III and discusses the Bank’s approach to mitigating emerging risks such as cyber threats and climate‑related financial risks.

2. FCA – Press Releases (https://www.fca.org.uk/about-us/press-releases) - This page contains a series of statements and announcements detailing recent regulatory actions taken by the FCA. Notable entries include the 2023 announcement on the FCA’s commitment to strengthening market conduct post‑pandemic, and the 2024 announcement of a new supervisory framework aimed at enhancing consumer protection in the digital services sector.

3. Financial Services (Banking) Act 2019 – UK Legislation (https://www.legislation.gov.uk/ukpga/2019/23) - The Act consolidates the FCA’s powers over market conduct, including the ability to regulate the conduct of financial advisers, oversee the licensing of financial institutions, and enforce disclosure obligations. It also extends the FCA’s authority to supervise non‑bank financial firms that provide retail services, thereby broadening the scope of oversight across the sector.