City of London: Heading Toward Offshore-Style Deregulation?

A Shifting Landscape in London’s Financial Hub

The City of London, long revered as a bastion of financial integrity, is showing signs of an unsettling transformation. Observers point out that Britain’s financial centre is increasingly mirroring smaller offshore jurisdictions – places like Malta, the Isle of Man, and the Channel Islands – where the local economy’s heavy dependence on finance creates perverse incentives for deregulation and regulatory capture. In these enclaves, financial services dominate economic output, giving industry players outsized influence over policy. Now, patterns in the UK suggest London’s guardians may be bending to similar pressures, raising alarms about conflicts of interest, diluted consumer protections, and an emerging “offshore” mindset in the heart of a G7 economy.

Financial services are indeed the lifeblood of many offshore economies. In crown dependencies such as Jersey and Guernsey, roughly 40% of the entire economy comes from banking, trusts, and related finance [en.wikipedia.orgdisclosure.spglobal.com]. The Isle of Man is even more concentrated – nearly 48% of its GDP is generated by its formidable financial sector [cityam.com]. Malta’s finance industry, while a smaller share (about 11% of GDP), is the country’s fastest-growing sector [trade.gov]. Such outsized reliance inevitably breeds regulatory capture: local governments become so economically entwined with finance that they hesitate to enforce tough rules, fearing to bite the hand that feeds them. This dynamic has turned several of these jurisdictions into notorious offshore havens, where lax oversight and accommodating laws attract waves of global capital – and, with it, bad actors seeking soft-touch regulation.

The United Kingdom’s national figures seem modest by comparison – financial and insurance services contributed about 8.8% of UK GDP in 2023 [commonslibrary.parliament.uk] – but that understates the City of London’s significance. Nearly half of the UK financial sector’s output comes from London alone [commonslibrary.parliament.uk], and the City’s influence on public policy is profound. As Britain charts its post-Brexit course, the government has explicitly tasked regulators with promoting competitiveness and growth alongside traditional oversight. Critics argue this dual mandate risks tilting priorities: when the prosperity of the City becomes a political imperative, the line between fostering a thriving market and turning a blind eye to malpractice can blur.

Collusion and Conflicts Offshore: QROPS and Trust Scandals

The dangers of a finance-dependent, lightly regulated regime are starkly illustrated in offshore pension schemes. Qualifying Recognised Overseas Pension Schemes (QROPS) – vehicles meant to let UK expatriates move their retirement funds abroad – have become hotbeds of collusion between trustees, asset managers, and financial advisers in certain jurisdictions. Time and again, investigations have uncovered how unscrupulous advisers and trustees prey on investors under the cloak of relaxed regulation.

One egregious case involved vulnerable British pensioners enticed into transferring their safe UK defined-benefit pensions into a Malta-based QROPS. A local trustee accepted the funds – a £111,960 transfer in one instance – and permitted the money to be funneled into a cocktail of high-risk, illiquid investments [forums.moneysavingexpert.com]. These included fractional hotel room ownerships that could only be sold on to another investor (with a hefty 15% transaction fee), untradeable loan notes in shaky businesses, and a “global” investment fund charging 2.25% annually [forums.moneysavingexpert.com]. The investors – one of whom had learning difficulties and was cold-called into the scheme – were led to believe these were prudent moves, when in reality they were utterly inappropriate for vulnerable retirees. Multiple parties in the chain profited except the client: introducers earned commissions for convincing people to transfer, asset managers collected fees on dubious products, and the QROPS trustee quietly oversaw the arrangement while raking in its own charges. It was only after an honest adviser raised the alarm that the scheme’s true nature came to light, by which time the victims’ pensions had been put in peril.

Another emblematic scandal was the London Quantum pension scheme, which U.K. regulators later described as a textbook case of pension mismanagement. Operated via a trustee company based in Malta, the scheme saw over 90 people transfer in more than £6 million of savings on the promise of superior investments [international-adviser.cominternational-adviser.com]. What actually happened is chilling: hundreds of ordinary pension holders were approached by commission-hungry introducers, who persuaded them to move their funds into “exotic sounding” ventures [international-adviser.com]. Once under the trustee’s control, their money was poured into high-risk, illiquid assets – from eucalyptus farming projects to hotel rooms on a distant African island – all schemes bearing “the hallmarks of being scams,” as the UK Pensions Regulator later found [international-adviser.cominternational-adviser.com]. Large commissions flowed out to the introducers, the scheme’s operators (Dorrixo Alliance), and related service providers [international-adviser.cominternational-adviser.com]. Meanwhile, many investors had been under the impression their pensions were safely in low or medium-risk instruments[international-adviser.com]. The collusion was systemic: trustees who should have been gatekeepers instead opened the gates wide, advisers put self-enrichment over fiduciary duty, and local regulators failed to intervene until irreparable damage was done. Only belatedly did the UK authorities step in – banning the Malta-based trustees as “reckless and lacking in integrity” [international-adviser.cominternational-adviser.com] and appointing independent trustees to clean up the mess [international-adviser.com] – but by then the trust-based safeguards had already been subverted.

These case studies underscore a pattern: in environments where financial oversight is weak or conflicted, bad actors form a mutually beneficial chain. Trustees rubber-stamp dubious investments, asset managers design high-commission products, and financial advisers or introducers rope in unsuspecting clients – each profiting in turn. The losers are ordinary investors, whose life savings are treated like oxygen for a fire of greed. It is precisely this pattern that many fear could take hold as the City of London drifts toward a more laissez-faire, industry-captive regulatory posture.

Parallels in the UK: Signs of a Regulatory Race to the Bottom

Recent flashpoints in the UK financial sector reveal a concerning tilt toward industry leniency – echoing the very conflicts of interest and deregulatory bias seen offshore. A series of scandals and policy U-turns suggest that, even in Britain, protecting consumers can take a backseat when financial services’ profitability or reputation is at stake. Below we highlight several examples that, taken together, paint a troubling picture of London’s regulatory climate:

Hidden Commissions in Motor Finance: Millions of UK car buyers fell victim to a motor finance commission scandal that would not look out of place in a dodgy offshore dealing room. A 2019 Financial Conduct Authority investigation found that many car dealerships and brokers were secretly inflating interest rates on vehicle loans to pocket higher commissions, without properly informing customers [gbnews.com]. Borrowers across the country were unwittingly paying extra, their loan costs directly tied to kickbacks for the dealer. This toxic commission model – essentially a bribe for dealers to act against their customers’ interest – persisted for years, indicating a failure of oversight in the consumer credit market. Only after the watchdog’s probe did the practice come under scrutiny, leading the FCA to ban certain commission structures. Yet even as consumers seek redress, the institutional instinct to shield industry is apparent: when a UK court opened the door to mass compensation (potentially £40 billion worth) for mis-sold car loans, the FCA and Treasury intervened in an attempt to limit the fallout. In 2025 the FCA argued to the Supreme Court that the earlier ruling – which required dealers to clearly disclose their commissions and act in customers’ best interests – “goes too far,” warning it could spook lenders and undermine investment [theguardian.comtheguardian.com]. Such a stance, effectively opposing full restitution for consumers, has raised eyebrows. It suggests that even the UK’s top regulator can succumb to lobbying when the financial stakes are high, prioritising market stability (and industry profits) over rigorous consumer protection.
Adviser Charging Abuses: The UK’s financial advice sector has faced its own accountability crisis, reminiscent of the offshore advisory free-for-all. Under rules introduced a decade ago, investment advisers can no longer take hidden commissions and instead charge fees agreed with clients. But a recent review of adviser charging unearthed a widespread problem: many firms have been charging customers ongoing fees for “annual reviews” or advice services that they failed to actually deliver [kpmg.com]. In other words, some advisers quietly collected fees year after year while doing little or no work on the client’s behalf – an arrangement not unlike an offshore trustee drawing a stipend while neglecting a trust’s interests. The fact that this practice became common (prompting the FCA to launch a formal review in 2024) shows how easily standards can slip when oversight slackens. It points to a culture in which portions of the industry felt entitled to profit without accountability, assuming that regulators would neither notice nor crack down. Such complacency and conflict of interest – advisers putting easy revenue above client welfare – mirrors the ethos behind the QROPS mis-selling rings. The FCA’s renewed scrutiny is welcome, but it comes years late, only after client complaints and the new Consumer Duty forced the issue. One is left to wonder how much detriment quietly occurred while the watchdog’s attention was elsewhere. Updating you. Let’s call it what it is—a regulatory whitewash. After two years of anticipation, public concern, and industry hand-wringing, the FCA’s ongoing advice review amounted to little more than damage control. Despite clear signs of widespread consumer detriment—phantom services, invented reviews, and advisers billing the dead—the regulator declared the sector largely clean. No enforcement. No redress. No accountability. It was a performance for the record, not protection for the public. Instead of exposing the rot, the FCA swept it under the rug—cementing its role not as a watchdog, but as an apologist for a failing model. Justice wasn’t served. It was stage-managed into silence.
“Name and Shame” Proposals Shelved: Perhaps the clearest sign of regulatory capture emerging in the UK was the FCA’s recent retreat from greater transparency. In early 2024, the regulator floated bold plans to publicly name firms under investigation in the interest of alerting consumers. This would have been a major shift from the usual secrecy surrounding enforcement probes. However, faced with “unprecedented criticism from almost all stakeholders,” the FCA abruptly shelved the idea [macfarlanes.com]. Industry lobbyists and even lawmakers lambasted the proposal as harmful to the competitiveness of UK finance, warning it could unfairly tarnish companies’ reputations before misconduct is proven [macfarlanes.com]. Rather than standing its ground on a pro-consumer reform, the FCA capitulated: by March 2025 it announced it would not proceed with routine public identification of investigated firms, citing a “lack of consensus” [macfarlanes.com]. This backtracking – essentially prioritising the comfort of firms over the knowledge of consumers – is exactly the kind of concession one expects in a deregulated haven that fears scaring off business. The episode sends a worrying signal: that in the UK, much like in offshore centers, vigorous oversight may be tempered or abandoned if powerful industry voices protest loudly enough. Transparency, a key deterrent of wrongdoing, got trumped by the City’s short-term image concerns.
New Barriers for Consumer Redress: As scandals like the car finance fiasco generate a flood of complaints, the system meant to deliver justice is also tilting in an anti-consumer direction. The Financial Ombudsman Service (FOS) – the UK body that handles individual complaints against financial firms – quietly introduced a £250 fee for complainants who have legal representation, reducing it to £75 if the consumer wins their case [riskandcompliance.freshfields.com]. This unprecedented charge effectively penalises consumers for seeking professional help. While positioned as a deterrent against spurious mass claims by Claims Management Companies, it also deters legitimate complainants (especially vulnerable ones) from getting a lawyer to help them fight a bank or insurer. In practice, an ordinary person up against a well-funded firm and its legal team might think twice about hiring their own solicitor if it means a £250 bill – exactly the result many in the industry desire. The timing is notable: this change came as some 20,000 motor finance complaints inundated the FOS, many submitted via claims firms after the commission scandal came to light [riskandcompliance.freshfields.com riskandcompliance.freshfields.com]. Rather than the regulator and ombudsman focusing on speeding up compensation or expanding capacity, the response was to make it harder for consumers to pursue redress collectively. It’s a move one would expect in a jurisdiction seeking to shield its financial sector from scrutiny – erecting hurdles for victims in the name of efficiency. Consumer advocates fear this sets a dangerous precedent, effectively tilting the scales of justice back toward the powerful by pricing out those who seek advocacy.
Pensions Tapped to Plug Deficits: In a trend that encapsulates “business-first” thinking, UK policymakers have increasingly turned to pension funds and savers’ money as a tool to patch up public finances – rather than addressing the crooked advisers and schemes that jeopardise those savings. The most striking example is a recent tax change targeting people who move their pensions overseas. Since 2017, the UK has levied a 25% Overseas Transfer Charge on certain pension transfers out of the country, ostensibly to discourage tax avoidance. Until now, transfers within the EU were exempt, but in late 2024 the government removed that exclusion, extending the hefty charge to all EU-bound pension moves as well [linklaters.com]. A Brit retiring to, say, Spain and transferring a tax-relieved UK pension to a local scheme could now lose a quarter of their pot to the taxman – a policy framed as closing a loophole, but which effectively punishes consumers for retiring abroad. The same budget included plans to start taxing more pension death benefits to raise revenue [linklaters.com]. These measures might boost the Treasury’s coffers (helping plug deficits), yet they do nothing to root out the collusion and malfeasance in the pension industry. Honest retirees face new taxes and restrictions, while the financial advisers and trust companies that engineer exploitative pension arrangements often escape serious consequence. It’s a classic example of treating the symptoms (capital leaving the UK) rather than the disease (the misconduct that makes people’s money flee to begin with). By relying on pensions as a fiscal stopgap, the government risks normalising a mindset that sees savers and their hard-earned nests as resources to be tapped, rather than individuals to be safeguarded from predatory practices.

Each of these UK examples – from car loans to pensions – reflects elements of the offshore playbook: regulators influenced to go easy, intermediaries allowed to exploit conflicts of interest, and authorities more keen to preserve the financial sector’s sheen than to defend the public. The patterns of collusion and capture that once seemed like a distant “offshore problem” are now uncomfortably close to home.

Breaking the Cycle: Accountability Without Borders

If the City of London is to avoid sliding fully into the mold of a deregulated haven, a dramatic course correction is needed. The solution is not to throw up protectionist walls or penalise consumers for taking their money abroad – that only masks symptoms and unfairly burdens the victims. Instead, the focus must be on enforcing accountability globally and rooting out conflicts of interest at their source. Bad actors thrive in the gaps between jurisdictions, so those gaps have to be closed with cooperative oversight and aligned standards.

First and foremost, regulators in the UK and offshore centers alike must adopt a stance of zero tolerance for collusion and misconduct, even when it involves politically connected firms or lucrative business lines. This means revitalising enforcement: for example, reviving (rather than abandoning) the initiative to publicly name and shame rogue operators across borders, so that a fraudster cannot skip from London to Malta to avoid detection. It means the Financial Conduct Authority, the Malta Financial Services Authority, the Isle of Man FSA, and others sharing data on suspect advisers and schemes in real time – a framework of global accountability where a scam unmasked in one locale is swiftly flagged everywhere. No longer can trustees struck off in one jurisdiction simply set up shop in another under lesser scrutiny. A concerted international effort is required to harmonise cross-border regulation, ensuring that what is illegal or unethical in one financial centre isn’t permissible in another. This could be facilitated by global bodies or treaties that establish baseline rules for investor protection, disclosure, and fiduciary duty that all reputable jurisdictions commit to uphold.

Critically, systemic conflicts of interest must be dismantled. This means rethinking how financial intermediaries are paid and supervised. The pernicious commission structures that incentivised car dealers to overcharge, or advisers to churn pensions into high-risk funds, have to be reformed or banned outright. Whether onshore or offshore, anyone giving financial advice or managing others’ money should be bound by a fiduciary duty to act in the client’s best interest – with real penalties for breaching it. If a trustee in Jersey or a wealth manager in London is found skimming off excessive fees or kickbacks, regulators should be empowered (and emboldened) to revoke licenses and pursue prosecutions, not quietly settle matters to avoid rocking the boat. Only by removing the profit motive for bad advice can the cycle of mis-selling be broken. The industry will no doubt resist stricter rules, arguing they stifle innovation or competitiveness, but a market that rewards honest conduct is ultimately more sustainable and reputable than one that caters to the lowest common denominator.

Finally, policymakers must remember who the financial system is meant to serve. Every rule and reform should be tested against a simple principle: does this protect and empower consumers, or does it protect incumbents at consumers’ expense? The recent tendency to plug budget holes by raiding pensions or to prop up markets by muzzling transparency fails that test. Instead of penalising retirees for moving overseas, governments should be prosecuting the advisers who abused their trust. Instead of discouraging consumers from seeking justice (through ombudsman fees or procedural hurdles), we should be expediting mass compensation schemes and facilitating collective redress when widespread harm is revealed. In short, rather than insulating the financial sector from the consequences of its misdeeds, we must insulate consumers from the consequences of the sector’s misdeeds. That requires courage: elected officials and regulators willing to stand up to industry lobbies and prioritise the public good, even at the risk of upsetting powerful interests in the City.

London does not need to become a clone of Malta or the Channel Islands in order to thrive. The UK can remain a competitive global financial centre without sacrificing its integrity – but only if it heeds the warning signs now. The patterns of collusion and regulatory capture can be stopped with decisive action: enforce the rules globally, shine sunlight on misconduct, and eliminate the perverse incentives that allow profiteers to prey on the unwary. Market participants of conscience, from honest bankers to ethical advisers, should demand this course correction as loudly as anyone, for a market riddled with scandal benefits no one in the long run. The City’s reputation, once tarnished, is hard to restore. By confronting these issues head-on – and refusing to be seduced by the easy money that deregulation promises – London can chart a future that marries its historical strengths with a modern, accountable financial system. The choice is clear: global accountability over offshore impunity, and consumer protection over cynical exploitation. It’s time for the City to choose the higher road, before it slips further down a path all too familiar in the shadowy world of offshore finance.

Sources: Recent investigations and reports from regulators and industry press provide the basis for these findings. Notably, financial services constitute nearly half of the economy in hubs like the Isle of Man [cityam.com] and around 40% in Jersey [en.wikipedia.org] (versus 8.8% in the UK [commonslibrary.parliament.uk]), illustrating the dependency that can fuel regulatory capture. Case studies of pension mismanagement in Malta and other offshore jurisdictions reveal how trustees and advisers colluded to invest retirees’ savings in high-risk, fee-laden assets[forums.moneysavingexpert.cominternational-adviser.com]. In the UK, the motor finance commission probe found dealers inflating loan rates for secret commissions [gbnews.com], while the FCA’s attempt to increase transparency by naming firms under investigation was withdrawn after industry backlash [macfarlanes.commacfarlanes.com]. The Financial Ombudsman’s new fee for legally represented complainants has been noted as a deterrent to consumer claims [riskandcompliance.freshfields.com]. Meanwhile, budget changes have extended a 25% tax charge to most overseas pension transfers [linklaters.com]. These sources and events underscore the article’s call for unified regulatory action and consumer-centric reforms.

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