Financial regulators like the Financial Conduct Authority and the Bank of England must remain independent from the Treasury and must be free to choose what they share with the government, a leading group of MPs has said.
In a report on the future of post-Brexit financial regulation published on 6 July, the Treasury Committee, tasked with holding the City to account, said it does not believe “there is compelling evidence for legislating to allow Ministers the absolute right to see regulators’ policy proposals before they are published for consultation”.
“The perception of regulatory independence from government could be damaged,” the lawmakers warned.
The report comes as the government seeks to give London a boost post-Brexit, with the Chancellor Rishi Sunak publishing a document outlining his plans to capitalise on the country’s split from the European Union earlier in the month, on the back of calls to liberalise regulations around the City’s listings and capital markets regime.
“Now that we’ve left the EU, we have a unique opportunity to take an approach that better suits our markets, while still maintaining high regulatory standards,” Sunak said in the 40-page roadmap for the UK finance sector.
The Treasury had suggested in its evidence to the Committee that Ministers be given sight of regulatory proposals at “an earlier stage in the policy formulation process”, according to the report.
“The Government proposes a general arrangement whereby the regulators consult HM Treasury more systematically on proposed rule changes at an early stage in the policy-making process and before proposals are published for public consultation,” the Treasury’s proposal said, adding that this would give the Ministers more time to consider policies.
The report also said the Financial Conduct Authority does not need any further oversight to make sure it stays in line.
Amid a raft of recent regulatory failures including the collapse of Neil Woodford’s fund empire, mass mis-selling of pension transfers, and widespread investor losses from mini-bonds, calls have grown in recent months to ensure the financial regulator bears sufficient scrutiny for its work.
Currently, the primary way the FCA is held to account externally is through regular questioning by MPs on the Treasury Committee. The Treasury Committee said that there was no need to bring in another entity to scrutinise how the FCA’s role evolved going forward.
“We do not see a clear need for the creation of a new committee or a new independent body to carry out this work,” the cross-party group of MPs tasked with holding regulators and the wider City accountable, said in its report.
“It would seem a more efficient use of parliamentary resources to use the structures that are already available in both Houses. Although the scrutiny task will be substantial, it will be an extended one as new regulations are drafted, rather than a short-term surge of activity.”
In its inquiry, the group of MPs chaired by Conservative MP Mel Stride received “several” written submissions proposing a sub-committee or a new separate select committee tasked with overseeing financial services.
Innovate Finance, the financial technology lobby group, wrote: “With [the] increased role [for the regulators], we recommend that there is greater scrutiny of the regulators regarding the performance of their functions and rule-making than is currently the case”.
“Given the significant resource and expertise such scrutiny will require, we recommend such scrutiny should be performed by a new, independent committee set up for the purpose.”
Barclays and other industry groups including the Association of British Insurers and the Investment Association also suggested a joint committee with members from the House of Commons and House of Lords be created.
“A joint committee would potentially increase expertise and experience of the membership and provide extra resource to enable the committee to address a wide variety of policy matters,” Barclays wrote in its evidence.
Former chancellor George Osborne gave the Treasury Committee one of its most significant powers to date in 2016: MPs are now able to block a new FCA chief executive’s appointment and send it to a vote in the House of Commons.
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