The All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services is calling for a royal commission on financial services regulation, warning in a new report that the government's plan to deregulate for growth risks exacerbating what the APPG says are systemic problems.  

The APPG says parliament must “reclaim” its role in financial regulation in a report running to more than 250 pages. The MPs and peers call for a royal commission to conduct a “root and branch” review, citing the example of Australia, which had its own 'Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry' in 2017-19.  

“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,” said APPG chair John McDonnell.   

The Labour MP for Hayes and Harlington added: “We must also be clear that weakening consumer protections will not deliver growth. 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.”  

The APPG is hoping a royal commission would: 

 
The UK's system of financial conduct regulation is in urgent need of fundamental structural reform, the APPG said. Its report includes findings from a public survey, parliamentary debates, independent reviews of the performance of the Financial Conduct Authority, testimony from victims and whistleblowers and analysis of financial scandals, saying early warning signs tend to get ignored, whistleblowers marginalised and regulatory intervention delayed.  

The parliamentarians argue there is a revolving door problem between regulators and the industry, conflicts of interest and ‘regulatory capture’, where regulators become unduly influenced by the sectors they oversee. 

Campaign group the Transparency Task Force, which forms the secretariat of the APPG, has been calling for the FCA to be reformed or replaced for some time, including with a march on parliament in 2022.

Sarah Bool MP, one of the APPG's vice chairs, said: “As a Conservative, I believe in the power of free markets – but free markets only work when they are also fair markets.”

The individuals whose experiences are reflected in the report are not abstract case studies but people who lost life savings, retirement security and peace of mind because a system designed to protect them did not function as it should, said Lord Davies of Brixton, also a vice chair of the APPG. 

“The pattern identified in this report – repeated scandals arising from similar systemic weaknesses – suggests that incremental adjustments are unlikely to be sufficient. A thorough examination of the regulatory framework, be that through a royal commission or something similar, would allow parliament to consider how best to ensure that financial regulation genuinely serves the public interest,” he argued.  

Before the establishment of Australia’s royal commission, “the banks and their lobbyists, sections of the media and civil society, and the then Turnbull-Abbot government argued forcefully that a royal commission was not needed", noted APPG secretariat member Andy Schmulow, an associate professor at the University of Wollongong. “But in the aftermath of our royal commission, those who had opposed it uniformly agreed that the inquiry had been necessary, sobering, and cathartic.”  

The UK's current government has suggested that regulations and rules introduced in response to failures that led to the 2008 financial crisis are inhibiting UK economic growth. Last July, chancellor Rachel Reeves said she was “rolling back regulation that has gone too far in seeking to eliminate risk”.

Reeves has tasked the Financial Conduct Authority with assessing whether the Consumer Duty “unduly” affects wholesale activity and revealed plans to reduce capital requirements, relax the senior managers regime and cut back some of the powers of the Financial Ombudsman Service. The Treasury has published its consultation response on FOS' powers today, among others introducing an absolute time limit of 10 years for bringing a complaint. The FCA and FOS are now seeking views on modernising the redress system, in a further consultation that closes in May. 

Among those that have been lobbying for such changes is the Investment Association, whose chief executive previously said there should be a rethink of “safety-ism”.

The debate about risk prompted the chief executive of the FCA, Nikhil Rathi, to say in 2024 that taking more risk will require society to accept things can go wrong. 

In the US, President Donald Trump has already deregulated, having signed an order to allow US DC scheme members to invest in crypto - his family runs a cryptocurrency firm - private equity and other alternative assets.