UK regulators launch initiatives to boost innovation and growth

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) yesterday unveiled separate plans designed to support financial services firms’ growth efforts.

The PRA is consulting on a two-year window before insurers are required to meet its matching adjustment rules, while the FCA announced one-to-one support for firms passing out of its regulatory sandbox.

It is more than three years since insurers first voiced concerns about the inflexibility of the PRA’s capital assessments in evidence to the House of Lords Industry and Regulators Committee inquiry into the UK’s insurance and reinsurance markets.

Yesterday, PRA chief executive Sam Woods announced measures to address one of the issues identified in 2022 with the introduction of a matching adjustment investment accelerator (MAIA).

Put simply, matching adjustments allow an insurer to increase its capital resources, but any changes to its matched assets must be approved by the regulator — a process that can take up to six months. The PRA is proposing to give an insurer up to two years from purchasing assets for its matching adjustment portfolio to apply for a variation in its matching adjustment permissions.

“This innovation will enable insurers to make more rapid investment decisions and support growth in the UK economy, while protecting policyholders,” Woods said.

Since 2023, both the PRA and the FCA have had a secondary objective of supporting international competitiveness and growth in the UK economy. However, in recent months the Labour government has vowed to cut regulation in an effort to boost growth.

On Christmas Eve 2024, Prime Minister Keir Starmer wrote to the FCA and the PRA asking them to set out how they would support growth. Since then both regulators have taken to pointing out how each initiative they undertake supports the UK financial services industry.

Sandbox to authorisation

To this end, yesterday the FCA set out how it will deliver on a commitment in its 2025-26 work programme to better support new financial services firms through its authorisation process. Every firm that successfully tests a product in its regulatory sandbox will now receive its own authorisation case officer.

Since the sandbox was introduced in 2016, 195 consumer-facing firms have been accepted into it. The FCA said it was launching an artificial intelligence (AI) testing lab to aid financial firms’ adoption of such technologies. From April 8, it is also offering a pre-application support meeting to wholesale, payments and crypto asset firms, designed to help them identify key areas of focus in their “authorisation journeys”.

FCA chief executive Nikhil Rathi said the plans demonstrate that the regulator is “committed to supporting growth”.