Annual cost of regulatory compliance to UK financial services sector exceeds £33.9bn
New research from TheCityUK and PwC UK, based on interviews with Chief Compliance Officers and senior compliance professionals across UK financial services firms, estimates that annual regulatory compliance costs across the sector now exceed £33.9 billion — representing over 13% of firms’ annual average operating costs.1
The report, ‘Reducing the cost of compliance’, found that 84% of respondents have seen their compliance costs either increase (53%) or significantly increase (31%) over the past five years. Additionally, 53% of respondents who operate outside the UK stated that the total cost of regulatory compliance in the UK is somewhat or considerably higher when compared to other jurisdictions.
While momentum is building and progress is being made through the Leeds reforms and the regulators’ efforts, the report underlines the pressing need to build on this through collaborative action between government, regulators, and industry. With all stakeholders focused on delivering growth and competitiveness, concerted efforts must be made to reduce the cost and complexity of doing business in the UK.
The report’s key findings include:
- The costs of regulatory compliance typically measured by firms - including the cost of the compliance function, regulatory change, and fines/enforcement actions – was an estimated 2.6% of annual operating costs, with end-to-end costs estimated to be more than four times higher.
- The true cost of compliance is significantly underestimated by most firms, as end-to-end costs are often not systematically measured.
- High compliance burdens risk diverting investment away from innovation and new products.
While the UK’s robust regulatory framework is widely respected, there is a clear appetite among industry leaders to simplify and enhance the regime without compromising its core principles.
The report sets out practical recommendations for UK regulators and firms to address the compliance burden. For regulators, these focus on three key areas of regulatory reform:
- A more accessible and proportionate framework
A systematic review of rulebooks is needed to eliminate unnecessary complexity and outdated requirements. It calls for tailored regulation for non-systemically important investment firms, early clarity on new regulations, and strengthened cost–benefit analysis.
- A smarter, more supportive supervisory approach
The FCA and PRA could reduce the burden on firms and better support innovation by embedding proportionality in supervisory practices, and better coordinating and streamlining supervisory requests. The FCA should also clarify its new supervisory model with clear criteria or indicators for assessing whether a firm is “doing the right thing”.
- Embracing technology and data analytics
The FCA should deliver its machine-readable Handbook at pace, further modernise data collection and analytics, and support the industry’s adoption of shared utilities—such as Know Your Customer (KYC) and reporting—by setting standards and convening stakeholders.
The report also recognises the responsibility firms have to contribute to the safety and soundness of the financial system. To that end, it outlines actions firms could take to drive down the cost of compliance, including:
- Taking a holistic approach: Firms should address compliance costs across all areas of their operations, not just within the compliance function. Business can achieve significant and sustainable cost savings by reducing complexity, digitising controls, improving data quality, and strengthening the capabilities of the first line to reinforce risk ownership.
- Adopting a business case mentality: Compliance transformation should be seen as a strategic enabler for the business, led by senior sponsorship adopting an investment mentality, not just a cost-cutting exercise.
- Embracing AI and Technology: Compliance functions can act as a digital pioneer, role-modelling the safe use of AI. This means developing a clear digitisation strategy, linked into enterprise-wide AI and technology adoption to realise long-term savings and improve compliance risk management.
Miles Celic OBE, Chief Executive Officer, TheCityUK, said, “Regulatory compliance will always represent a cost of doing business, but it doesn't need to be a drag on Britain's growth and competitiveness. The challenge, and the opportunity, is in ensuring that regulation is proportionate, predictable, and purposeful and that there's a collaborative approach to achieving the necessary regulatory compliance outcomes.
“This is a crucial moment for the UK financial services sector. By working together to simplify and optimise regulatory compliance, we can reduce costs, foster innovation, and strengthen the UK’s position as a leading global financial centre.”
Balaji Krishnamurthy, Partner at PwC UK, said, “Compliance is a foundational requirement, and the spend associated with it is necessary. This research shows there is a real potential to streamline, simplify and optimise the compliance operating model - to reduce the long-term costs of compliance and fuel growth without compromising compliance risk management.
“By making the most of technology, data and smarter operating models, organisations can create more efficient and effective compliance environments that drive innovation, resilience and long-term competitiveness.
“With regulators, government and industry moving in the same direction, firms should seize the moment and rethink how they invest strategically into their compliance operating model. Beyond unlocking efficiencies, strong compliance is the currency of trust with customers, regulators and markets.”
ENDS
Note to Editors:
- This figure reflects compliance-related costs only, and does not capture the full cost of regulation, which would also include broader requirements such as capital requirements, liquidity, and ring-fencing obligations, or other prudential measures. The directly attributable costs of regulatory compliance are estimated at 2.6% of annual operating costs. Organisation-wide costs, which refer to expenses incurred in supporting compliance requirements throughout the enterprise, are estimated to be over four times higher than the directly attributable costs on average, resulting in a total regulatory compliance cost of more than 13% of annual operating costs. Using the average operating costs for the top 20 largest financial services firms in the UK as a basis, the total regulatory compliance cost in the sector is estimated to be approximately £33.9 billion per year. (See page 3 of the report for full explanation.)
- The report is based on in-depth qualitative interviews with 19 Chief Compliance Officers across the UK financial services industry. These interviews were supplemented by a targeted survey designed to capture quantitative data on compliance operating models, resource allocation, and trends in technology investment.