Regulators are suffering from a “democratic deficit” that is holding back the UK growth, according to a new report from a high profile group of MPs.
The Regulatory Reform Group has said that “unaccountable regulators are directly hindering the UK’s growth prospects” and called for ‘City’ (financial district) watchdogs such as the Financial Conduct Authority (FCA) to be more accountable to lawmakers after taking on more powers post-Brexit.
The comments mark the latest attack on the City’s regulators, which have been placed in the firing line since the UK left the EU. FCA rules have been blamed for issues including London’s recent listings drought, the lack of investment by pension funds in UK equities, and weak growth in sectors such as financial technology and venture capital.
The report by the Regulatory Reform Group, which is chaired by former HSBC executive and Freshfields Bruckhaus Deringer lawyer Bim Afolami, calls for a dedicated Office for Regulation in the Cabinet Office that would manage and improve regulatory performance.
“An era of increasingly anonymous and powerful quangos, often underperforming, has to end,” said former Competition and Markets Authority chair Lord Andrew Tyrie, who is also part of the group.
Richard Fuller, former economic secretary to the Treasury, said: “The UK regulatory system is being undermined by a democratic deficit that we have failed to address since Brexit. After leaving the EU, we have handed our regulators huge powers over really significant parts of our economy, with little or no democratic oversight of how they are exercising these powers or way of measuring their performance.” The FCA does not set its own remit. The framework under which it operates was decided by parliament, which gave the regulator three core objectives – to protect consumers from bad conduct, to protect the integrity of the UK financial system and to promote effective competition in the interests of consumers.
The City watchdog is set to face higher levels of accountability in the wake of the Financial Services and Markets Bill. The intention of the bill being that it gives the government power to order a review of FCA rules, or set the terms of the cost-benefit analyses the FCA conducts and introduce a new secondary objective to promote growth.
The FCA is meant to be operationally independent of the government and use its own expertise to set rules that best meet the objectives set by politicians. Many in the Treasury view the regulator’s attitude as blocking the UK’s ability to cash in on post-Brexit freedoms.
City minister Andrew Griffith was critical of FCA’s plan to introduce a so-called consumer duty rules later this year. Senior staff at the FCA and the Bank of England pushed back against plans to introduce a so-called call-in power that would allow the government to veto decisions made by the regulators.
The Prudential Regulation Authority also cautioned against the government’s plans to put the Solvency11 rules that set capital requirements for insurers and pension providers. In response to the report, an FCA spokesperson noted that both operational independence and proper accountability are vital to a well-functioning regulator.
“Scrutiny allows us to show we are meeting the objectives set for us by parliament. We welcome this report and debate as we move towards a more outcomes-focused system of regulation. That is why we have also published metrics that will allow others to hold us to account.
“These metrics, for example, show that while the scrutiny we apply to authorisation applications has increased, pending authorisation casework has more than halved and we are now substantially meeting our targets.” (The writer is our foreign correspondent based in the UK)
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