HM Treasury Financial Services Regulation: Measuring Success, Call for Proposals

Financial Inclusion Centre has submitted a response to this important call for proposals on measuring the success of financial regulation. The submission can be found here: HMT Financial Services Regulation Measuring Success Call for proposals FIC submission

Financial regulators should not be judged solely on narrow operational terms or on how well they support the needs of finance.[1] We urge the government to adopt a more balanced and meaningful approach to judging the success of financial regulation.

Measuring the success of financial markets and, by extension, of financial regulators

The government sees the financial sector as playing a critical role in facilitating wider economic recovery and growth. Within this, the government is prioritising the growth of the financial sector itself.[2]  We obviously support a successful UK financial sector. But, it all depends on how success is defined and how that growth and success is achieved.

The financial sector (the City of London in particular) is seen by politicians as the ‘goose that lays the golden egg’ or one of the ‘jewels in the crown’ of the UK economy. There is an obvious risk that prioritising growth and competitiveness of the financial sector could lead to policy decisions that harm the environment, the real economy, and society.

It is important to remember the lessons from the 2008 financial crisis. Allowing the UK financial sector to become so big increased the risk of a financial crisis happening and also made the UK economy particularly vulnerable to the impact of that crisis.[3] Although there have been significant improvements in systemic risk and prudential regulation, concerns remain that risk has transferred to the less transparent, less well-regulated shadow banking system.

As well as creating systemic risks, we have to consider the wider environmental, economic, and social utility of finance. The financial sector lobby is very well resourced and vocal about the benefits the sector brings to the economy and society. As its many champions constantly tell us, the financial sector provides significant benefits to the UK economy in the form of contribution to GDP, tax take, balance of payments, employment and usage of financial services by UK households.

This is undoubtedly true. But, this needs to be set against the major environmental, economic, financial and social costs caused by the sector’s activities. These are set out in our report An economic and social audit of the City An Economic and Social Audit of the City

The sector continues to finance climate damaging economic activities at scale.[4] The cost of conduct failures and misselling scandals has been huge. There is compelling evidence that a primary function of markets – to allocate resources effectively to productive real economy activities – is not working well. Financial market activities have driven asset price bubbles affecting the ability of younger generations to get on the property ladder and contributed to high rents. The scale of the value extraction (in the form of high costs and underperformance) in the asset management industry dwarfs even the higher profile misselling scandals. Investor short-termism hinders the ability of real economy firms to plan for the future.[5] Financialisation of the economy is becoming more prevalent as financial institutions take over meeting core needs such as social care and housing. We have made almost no progress in promoting financial inclusion and resilience post 2008.[6]

The approach we followed in our Economic and Social Audit of the City report provides a more balanced analysis of the positive and negative contributions made by the financial sector. This is in contrast to that followed by HMT and The City of London Corporation in their State of the Sector report, which does not address the negatives.[7] This is perhaps not surprising given that all of the 50 plus contributors thanked in that report were from the industry.

We have suggested a framework and some preliminary metrics that would allow for a more balanced, objective evaluation of the success of financial markets and services. By extension, these would allow Parliament and civil society to judge the success of financial regulators in aligning finance with the interests of the environment, real economy, and society/ households.

The risks of the growth and competitiveness objective

In our submission, we reiterate our concerns that the imposition of the secondary growth and competitiveness on the main regulators and the government’s wider deregulatory agenda threatens to undermine the very real progress made in financial regulation post the 2008 financial crisis. We are concerned that effectiveness of the main financial regulators will be undermined.


[1] For example, as proposed by industry groups such as the London Market Group LMG_Regulation-–-Metrics-for-success.pdf

[2]  The objective is phrased as: ‘To facilitate, subject to aligning with relevant international standards the international competitiveness of the UK economy (in particular the financial services sector) and its growth in the medium to long term.’

[3] According to estimates, 10 years on from the crisis, the UK economy was 16 percent, or £300bn, smaller than it would have been if post-crisis growth had followed pre-crisis trends. GDP per capita was £5,900 lower than it would have been if the economy had followed pre-crisis trends. 10 years on – have we recovered from the financial crisis? | Institute for Fiscal Studies (

[4] The sector continues to finance climate damaging activities at scale not least because protecting the environment from finance is not given equal status with other statutory objectives such as protecting consumers, financial stability, maintaining market integrity, and preventing money laundering and financing of terrorism. This is a remarkable failure of political governance given the scale of the climate crisis. See: The Devil is the policy detail – will financial regulation support a move to a net zero financial system? | The Financial Inclusion Centre

[5] Data can be found here: An Economic and Social Audit of the City | The Financial Inclusion Centre and Time for Action – Greening the Financial System | The Financial Inclusion Centre

[6] The exceptions are access to basic bank accounts and pensions autoenrollment but both of these successes are due to legislation, not the finance sector becoming more socially useful.

[7] State of the sector: annual review of UK financial services 2022 (