Financial services companies are being battered by a tidal wave of regulation which threatens to undermine the sector's contribution to the UK economy, according to a new CBI report on the industry.
The business organisation is calling for a moratorium on new regulation and warning that Brussels complacency could endanger the global status of UK financial services.
The sector employs over a million people and generates over five per cent of Britain's GDP.
The CBI report, "Financial Services: Promoting a Global Champion," follows widespread concern from leaders of the UK's financial services companies about the volume of new legislation, mainly from the EU, that is being implemented during a short period.
Between 2004 and 2006 over 20 EU measures are likely to be imposed on companies, resulting in regulation and consultation overload, the CBI has warned.
CBI Deputy Director-General, John Cridland, said: "The UK financial services industry is one of the best in the world. It's a major contributor to UK employment, output and balance of payments, but that is at risk.
"A robust regulatory environment is essential. Internationally it's regarded as one of the strengths of UK financial services. But companies are being battered by the impact of relentless new regulation. It's forcing a dramatic and wasteful diversion of effort away from the daily battle to keep the UK ahead of its competitors.
"It's vital that companies are given a substantial breathing space and not another onslaught."
According to the CBI, excessive regulation is diverting management time away from developing the business and serving customers and skewing IT investment on complying with new regulation rather than improving productivity or customer service.
Training effort is also diverted to updating staff on new regulations. CBI retail banking members say up to a third of all staff training last year was about new regulation.
As well as the relentless pace of new regulation, financial services companies are also concerned about the potential damage from the way the industry is regulated in the UK. They say it has a major influence on whether global companies choose to locate here.
Last week, the government's own Better Regulation Task Force (BRTF) described regulatory creep is a ‘hidden menace’ that cost British businesses more than £100bn a year.
BRTF head David Arculus was particularly scathing about financial services regulations, pointing to attempts by the FSA to clamp down on money laundering as one example of bad regulatory practice.
The CBI report echoes the BRTF's concerns about the gold-plating of EU regulations, a lack of overall strategy and 'agency overlap', putting forward a 16 point action plan to sustain the UK's pre-eminence in financial services.
"This industry is vital to the UK and we should all be more supportive of it," John Cridland said.
"Companies know that they have to overcome the fall out from issues such as endowment mis-selling and are determined to put their own house in order. But they clearly feel that the entire industry is being unfairly tarred with the same brush.
"They need the government to champion their cause even more strongly at home and in Brussels."