Context
The Treasury Committee has published responses from the Government, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to its report on the Future of Financial Services Regulation. Following the UK’s withdrawal from the EU, Regulators have taken on new and greater powers. The principle of regulatory independence and the operational independence of the Bank of England underpin our financial services industry. The Committee will remain alert to ensure that the Regulators are not leant on to inappropriately water down regulations to the detriment of the safety and soundness of the financial services system.
Key points to note
The report contained the following conclusions and recommendations:
- The Treasury should respect the principle of regulatory independence, and must not pressure the regulators to weaken or water down regulatory standards.
- There should be a secondary objective for the FCA and the PRA to promote long-term economic growth.
- The Treasury should continue to reject any calls for a growth and/or competitiveness objective to become a primary objective. This would increase any pressure on the Regulators to trade off competitiveness against resilience, and would undermine the Regulators’ ability to deliver on their core functions. There is a danger that, as memories of the financial crisis fade, its lessons are forgotten.
- The Treasury should require the FCA to have regard for financial inclusion in its rulemaking, although the FCA argued against it.
- Regulatory independence is critical for the competitiveness and effectiveness of UK financial services regulation. The host of new accountability mechanisms proposed by the Treasury must be carefully reviewed in this light, to ensure that regulatory independence is not compromised.
- The FCA should consider how to improve its engagement with the poorest consumers, and must seek data on the issues vulnerable consumers experience directly.
Ahead of Wednesday’s Parliamentary debate on the Financial Services and Markets Bill, the Treasury notes each of the Committee’s recommendations.
In its response, the PRA agrees that independence of the Bank of England is vital to maintaining the effectiveness of financial regulation. It also agrees with the Committee’s assessment that pursuing international competitiveness in the short term by lowering the UK’s strong standards would not result in sustainable economic growth.
The FCA also supports the Committee’s position on regulatory independence, but disagrees with the recommendation that it should ‘have regard’ to financial inclusion, arguing it would not increase the FCA’s existing ability to act in line with the objectives set for it.
Next actions
None – for information and awareness.