Sam Woods, chief executive of the Bank of England’s Prudential Regulation Authority, warned that excessive regulation could turn the City of London into a “graveyard” by stifling innovation and risk-taking.
Speaking at the city’s annual banquet at the Mansion House, Woods warned that although financial regulation is essential for stability, over-regulation can stifle the financial sector’s ability to drive economic growth.
Woods described risks as the “lifeblood” of a booming economy, arguing that trying to eliminate them completely would stifle innovation and leave the City in the doldrums. “Risk is the lifeblood of a thriving capitalist economy, fueling growth and innovation,” Woods said. “The whole point of a strong financial system is to enable society to take risks.”
His comments come amid growing concerns that Britain’s efforts to make financial institutions safer are becoming counterproductive. Woods acknowledged that the balance between regulation and risk management is difficult but critical, noting that “it is unthinkable that good companies will thrive in an environment of ever-expanding regulation.”
Woods pointed to recent moves by the RCA, such as the decision to scrap the cap on bankers’ bonuses, as evidence that regulators are taking steps to ease the burden on the City. He said that this limit “harms competitiveness,” and its cancellation sends an important signal of intent to roll back unnecessary regulations.
The Financial Conduct Authority (FCA) has also faced criticism over its increased regulatory requirements. In February, the Financial Conduct Authority (FCA) came under fire over proposals to “name and shame” companies under investigation, and also faced complaints over rules around diversity and inclusion disclosure. Jeremy Hunt, a former chancellor, has introduced a new mandate for regulators, including the Financial Conduct Authority (FCA) and the Financial Regulatory Authority (PRA), to consider economic growth as a “secondary objective” of their regulatory duties. The move was seen as a direct response to concerns that regulators were hindering the city’s growth potential.
Sir Keir Starmer, who has largely followed the previous government’s regulatory approach, has reinforced this trend by urging regulators to take economic growth seriously. Speaking at the International Investment Summit, Starmer said the government would force regulators to focus on growth as a priority.
Nikhil Rathi, chief executive of the Financial Conduct Authority, echoed Woods’ sentiments, describing the new growth mandate as “liberating” and leading to more open conversations about risk. Both Rathi and Woods stressed the importance of striking the right balance between maintaining stability in the financial system and allowing sufficient flexibility for companies to grow and take calculated risks.
David Postings, chief executive of banking lobby group UK Finance, agrees: “If we can collectively strike the right balance between risk and consumer protection, this will help support economic growth and financial inclusion in the UK.”
As regulators face increasing pressure to cut red tape and boost competitiveness, Woods’ comments reflect a broader discussion about how to balance the need for stability with the need for growth and innovation in the financial sector.
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