The City of London is struggling. As reported in the Financial Times this week, fundraising from Initial Public Offerings in London has fallen to its lowest level in 30 years. The first six months of 2025 have been worse than the first six months of 2009, in the immediate aftermath of the global financial crisis.
Some are suggesting that London is facing a downward spiral, and news that pharmaceutical giant AstraZeneca is delisting from London turns a bad situation into a disastrous one. Once a true global leader in financial services — London used to be known as a “Goliath Market” — the City is withering into irrelevance. It is a far cry from the Lawson-Thatcher vision of the late 1980s.
It is interesting, therefore, that the Financial Conduct Authority (FCA) — the country’s financial services regulator, has decided to launch a new consultation on so-called “non-financial misconduct”, which it is attempting to stamp out of the industry.
The FCA believes that it is necessary to do this in the interests of fostering inclusive working environments, increasing diversity in the workplace, and ensuring no “bad apples” who bully and harass their colleagues are protected by the system, as is implied by the consultation. The scale of the problem is not articulated properly, and despite laws against the sort of harassment described already existing — whether it is in decades of employment law, or more recent laws like the Equality Act 2010 — the regulator seems determined to implement a new regime of rules on Britain’s beleaguered financial services sector as a priority.
All of this is a signal to simply not do business in Britain
The FCA has a small number of statutory objectives. These are to protect market stability and consumer welfare, and to promote competition in the industry. It also has a secondary objective to foster economic growth. It is right and proper for them to investigate financial misconduct among those working in the businesses it regulates, but to make the leap into non-financial misconduct inserts a financial services regulator into the personnel department of every business in the City. This is a clear example of regulatory overreach and should be resisted by Parliament.
This is not what the FCA was established to do. The FCA was established to oversee a healthy financial services sector which is resilient to the sort of shocks which caused the financial crisis of 2008. In November last year, the Treasury issued a letter to the FCA outlining the Government’s priorities and how it would like the FCA to operate. The Government stated unequivocally that growth is its number one priority, and that it expects the FCA to ensure new and innovative firms can enter the market, and that it streamlines the administrative burdens it imposes on businesses.
By the regulator’s own admission, the new guidance and rules being introduced to counter non-financial misconduct will cost the sector around £170 million to implement, and then around £95 million in ongoing compliance costs. Despite this, it claims that these proposals are coherent with the regulator’s objectives to increase competition and economic growth, because these costs are outweighed by the benefits of fostering inclusive working environments and promoting greater diversity. This is nebulous at best.
This is reminiscent of the FCA’s recent attempt to impose mandatory diversity reporting requirements on regulated firms in the financial services sector. Indeed, many of the justifications are the same, including compliance with the Public Sector Equality Duty. However, the FCA recently withdrew its proposed diversity regulations following widespread backlash from politicians, think tanks and industry figures.
Though these proposals are less explicitly political than mandatory diversity and inclusion policies, they are driving in a similar direction, and evidently intend to achieve similar outcomes. The suggestion that it is the FCA’s job to ensure workplaces are not only inclusive, but psychologically safe, strays deep into the territory of policing speech and everyday interactions between colleagues, which could create a corrosive and litigious culture in workplaces.
The FCA states that intervening to prevent non-financial misconduct in firms will prevent other problems developing in these companies which may eventually cause consumer harm and damage market integrity. Little justification is offered for this, and the public are invited to imagine that a badly tempered executive who berates a subordinate employee is only a few steps away from causing a financial crisis.
This is neither credible, nor does it warrant an additional layer of bureaucratic oversight of businesses on top of existing laws and forthcoming regulations in the Government’s Employment Rights Bill, which looks set to erode the last remaining flexibility in Britain’s labour market.
All of this is a signal to simply not do business in Britain. The FCA is fiddling while the City burns, and money leaves Britain in droves. It is extraordinary for the regulator to claim that increasing the regulatory burden will benefit the British economy while investors and entrepreneurs leave the UK for countries with lower taxes and lighter regulations, like the USA or the UAE.
It is clear that the FCA is no longer doing its job. It has interpreted its objectives to protect market stability and consumer welfare as carte blanche to regulate the financial services sector into submission, fixing it in aspic, as managed decline is apparently preferable to the unpredictable nature of innovation. Until the state and its bodies realises that it cannot and should not try to regulate every interaction between colleagues or between clients and suppliers, Britain’s drift will continue. Only a radical programme to repeal years of damaging laws and the injection of dynamism and risk back into the economy will restore Britain to prosperity.
