The Treasury Committee today publishes responses from the
Government, Prudential Regulation Authority (PRA) and Financial
Conduct Authority (FCA) to its report on the Future of Financial
Services Regulation.
The report, published in June, outlined that competitiveness
should not become a primary objective for financial regulators,
warned against any inappropriate weakening of the UK’s strong
regulatory standards, and reaffirmed its commitment to regulatory
independence.
The Committee supported calls for regulators to be given a
secondary objective to promote long-term economic growth, and
recommended that the FCA should have regard for financial
inclusion in its rule-making.
Ahead of Wednesday’s Parliamentary debate on the Financial Services and Markets
Bill, the Treasury notes each of the Committee’s
recommendations.
In their response, the PRA agrees that independence of the Bank
of England is vital to maintaining the effectiveness of financial
regulation. The regulator 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 the
regulator should ‘have regard’ to financial inclusion, arguing it
wouldn’t increase the FCA’s existing ability to act in line with
the objectives set for it.
Chair's comment
Commenting on the responses, Rt. Hon. MP, Chair of the Treasury Committee, said:
“Following the UK’s withdrawal from the EU, regulators have taken
on new and greater powers. Underpinning our financial services
industry is the principle of regulatory independence, as well as
the operational independence of the Bank of England. The
Committee will remain alert to ensure that regulators are not
leant on to inappropriately water down regulations to the
detriment of the safety and soundness of our financial services
system.”
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 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 rule-making.
- 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.
