UK lawmakers call for radical reform of financial regulation - The Armchair Trader

A cross-party group of UK parliamentarians has called for a sweeping overhaul of the UK’s financial regulation, warning that a push towards deregulation risks exacerbating systemic failures that have repeatedly harmed consumers.

In a 250-page report published on Monday, the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services argues that the current regulatory framework is structurally flawed and no longer fit for purpose. The group is urging the government to establish a Royal Commission to undertake a “root-and-branch” review of the system.

The report, titled Why Our Financial Conduct Regulation Needs Reforming, draws on a wide range of evidence, including a large-scale public survey, parliamentary debates, independent reviews and testimony from victims of financial misconduct. Its central conclusion is stark: recurring scandals in the UK financial system are not isolated failures but symptoms of deeper institutional weaknesses.

UK regulation not fit for purpose

According to the APPG, a consistent pattern has emerged over the past two decades — early warning signs are overlooked, whistleblowers sidelined, regulatory action delayed and consumers left to bear significant losses. Subsequent reforms, the group argues, have tended to focus narrowly on individual incidents rather than addressing underlying structural issues.

“This report brings together one of the most comprehensive bodies of evidence ever assembled on the failures of financial conduct regulation in the United Kingdom,” said John McDonnell, chair of the APPG. “Scandal after scandal has been treated as an isolated event, yet the same warning signs are ignored, the same regulatory failures occur, and the same devastating consequences are suffered by ordinary people.”

At the heart of the critique is the role of the Financial Conduct Authority, which the report suggests operates with insufficient accountability to Parliament. The APPG argues that the delegation of significant powers to arm’s-length regulators, combined with broadly defined statutory mandates, has created what it describes as a “democratic deficit”.

UK adults lack trust in financial services

Survey data included in the report reinforces concerns about public confidence. Of more than 21,000 responses assessing regulatory performance, over 80 per cent expressed strongly critical views. The findings echo the FCA’s own research indicating that more than half of UK adults lack trust in financial services.

The report also revisits conclusions from previous inquiries, including the Gloster and Swift reviews, which identified shortcomings in regulatory oversight but did not, in the APPG’s view, lead to meaningful structural reform. Case studies of major financial scandals point to recurring issues such as conflicts of interest, regulatory inertia and redress mechanisms influenced by the firms under investigation.

The APPG highlights what it terms an “unholy trinity” undermining effective regulation: the revolving door between industry and regulators, conflicts of interest within decision-making structures, and the risk of regulatory capture. It also raises concerns about the marginalisation of consumer voices in rule-making processes.

The timing of the report is significant. It comes as the government pursues policies aimed at reducing regulatory burdens to stimulate economic growth. The APPG challenges this approach, arguing that weakening consumer protections could ultimately damage the UK’s financial reputation and deter participation in markets.

“Weakening consumer protections will not deliver growth”

“We must also be clear that weakening consumer protections will not deliver growth,” McDonnell said. “It will deliver more scandals, more victims, and deeper distrust. A strong regulatory framework is not the enemy of economic success — it is one of its essential foundations.”

To address the issues identified, the group is calling for the establishment of a Royal Commission — the highest form of public inquiry — with powers to compel evidence and examine the regulatory system in its entirety. Such a review would consider how responsibilities should be distributed between Parliament, regulators and the courts, and how accountability mechanisms might be strengthened.

The APPG points to Australia’s Royal Commission into financial services as a precedent, arguing that a similarly comprehensive approach is required in the UK. While politically sensitive, the proposal reflects growing unease across parties about the effectiveness of existing oversight arrangements.

Whether the government embraces such a far-reaching inquiry remains uncertain. However, the report adds to mounting pressure for reform, suggesting that incremental changes may no longer be sufficient to restore trust in the financial system.