The long-awaited Financial Services and Markets Bill which was published on July 20 by the UK government brings in a new era of scrutiny for the Financial Conduct Authority and the Prudential Regulation Authority. In a reform package, the regulators have been given the power to repeal large parts of legacy European Union rules following Brexit.
However, the UK government is stepping up its oversight of them as a result, with a number of moves welcomed by the majority of respondents to a consultation on the framework published along with the bill.
Respondents “generally welcomed” giving the Treasury the power to force the regulator to review its rules when it thought it was in the public interest. Some thought it did not go far enough on forcing a rule change or when a review could be asked for.
However, they asked for more clarity on when it would be used. The bill confirms that the government can force the regulator to review rules if they have been in force for at least a year, and if it does not appear to the Treasury that the regulator is carrying out its own review. Powers to force through changes to the rules themselves, a so-called ‘call-in’ from ministers, remain under consideration.
It was reported in the Financial Times previously that Bank of England governor Andrew Bailey has personal reservations about the use of ‘call-in’. The chancellor Nadeem Zahawi, recently appointed to replace Rishi Sunak who resigned early last month, confirmed that a call-in would not be introduced immediately, while he takes time to “consider all the arguments before making such an important decision.”
The regulators will be asked to pursue growth and international competitiveness in addition to their existing goals of safeguarding markets and consumers.
The government said a “significant majority” of respondents to its consultation also thought the new secondary objective would be the right balance with consumer protections and market integrity.
In addition, other respondents were equally divided between those who thought the competition objective would wipe out regulatory standards and those who said the competitiveness would have to be a “primary” objective to make any difference. The majority also backed government proposals to make regulators consider how their rules would fit trade agreements with other countries, the Treasury said.
Some worried this could lower regulatory standards in order to preserve the trade agreements and questioned what would be prioritised in any conflict. The government has gone ahead, meaning the regulators will have to consult the Treasury on changes that could impact its work with overseas jurisdictions.
The Treasury committee of MPs already conducts regular questioning of FCA executives. However, the government has now made it a formal requirement for the FCA to notify the committee when it publishes any consultation and to respond should any parliamentary committee weigh in on any consultation.
The government is also forcing the FCA and PRA to publish the frameworks they use to conduct cost-benefit analysis on their rules as the idea was “strongly welcomed” by respondents.
The government will dictate what must be covered in these framework statements. The government will require the regulator to “have regard” to its commitment to achieve net-zero emissions by 2050 – a less important status for regulatory principles.
It has decided against a similar regard for financial inclusion, claiming this is already covered by the FCA’s existing initiatives – for example, on vulnerable customers and access to cash. The government has also given itself the power to introduce specific areas that it does not think are currently captured by the regulator’s objectives.
(The writer is our foreign correspondent based in the UK)
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