The All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services released a report earlier today calling for major reform of the UK’s financial services regulation.

The report, entitled ‘Why our financial conduct regulation needs reforming’, runs to over 250 pages and argues that the UK’s system of financial conduct regulation is “in urgent need of fundamental structural reform,” the group says. In particular, it warns that the current government’s “deregulate for growth” strategy risks weakening consumer protections that are already inadequate.

The paper argues that the UK’s “recurring pattern of financial scandals” is not accidental, but reflective of deeper structural problems in the operation of financial services regulation. It says that patterns including ignoring early warning signs, marginalising whistleblowers, and implementing limited reforms after the fact are the result of deferring too much power to arms-length regulatory bodies.

It says landmark independent reviews of the UK’s financial services regulation – including the 2020 Gloster Review and the 2021 Swift Review – have failed to achieve “meaningful structural reform” despite identifying significant shortcomings in the process. These factors contribute towards a lack of trust towards financial services in the country, with over 50 per cent of adults lacking confidence in the industry, it says.

The three major structural problems it identifies – dubbed “The Unholy Trinity” – are a revolving door between regulators and the financial services industry, conflicts of interest within regulatory decision-making structures and regulatory capture by the sector.

In response to these issues, it calls for a Royal Commission, the highest form of independent public inquiry available in the UK. Commissions are able to summon witnesses under oath, compel evidence and make policy recommendations, giving it significantly more power than previous investigations into the sector.

The APPG is made up of 54 Members of Parliament (MPs) and 13 members of the House of Lords. John McDonnell MP, chair of the APPG, said: "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.

"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. That is not coincidence – it is the product of structural weaknesses in the system Parliament created."

The report is unlikely to sway the current government, however. Chancellor Rachel Reeves is committed to deregulating the financial services sector in pursuit of growth, and the Treasury made no mention of support in a statement to the Financial Times.

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