The battle over post-Brexit guidelines looms whereas London’s monetary crown is at stake


As the Government weighs responses to its landmark consultation on a new approach to rulemaking for UK watchdogs, now freed from EU structures, the rival camps face a pitched battle.

It’s about striking a balance between rules that help the city thrive while ensuring consumers remain protected and politicians don’t exert too much influence over the watchdogs at arm’s length. At stake is the future of London – home to some of the biggest players in global financial services, already battered by Brexit.

“The new regulation needs to work for everyone, not just the big city institutions,” Marloes Nicholls, head of policy and advocacy at the Finance Innovation Lab, told Financial News. The organization was among 36 financial services organizations, including charities, NGOs and think tanks, that released a joint statement on February 4 criticizing the review.

Among the review’s proposals is to add another legal objective to the tasks of the Prudential Regulation Authority and the Financial Conduct Authority – promoting growth and international competitiveness. But the statement included a poll that showed 91% of consumers say international competitiveness shouldn’t be a top priority, Nicholls noted.

“Instead of so-called competitiveness,” she said, the UK public prefers the new regulatory framework “to focus on financial system stability, consumer protection and financial inclusion”. She added that financial services should be subject to “public accountability”.

The government is also seeking powers to force regulators to review rules if they think it’s in the public interest to do so, and to set up a new panel to consider how regulators weigh whether to enact new rules must.

“The review gives regulators far more powers to make and change rules than they had before, but it comes with the proviso that politicians will have additional powers to tell regulators what to do with those powers said the head of the financial institutions group at a leading law firm in the city, said. “The FCA in particular seems to be so understaffed that it’s hard to imagine how they will find the time to use their powers properly or to explain what they have done.”

It also raises questions as to whether Parliament has enough bandwidth to take on further oversight of multiple regulators, and whether the watchdogs themselves will end up being overwhelmed. However, others would like to take the opportunity of the review to improve oversight by regulators.

“Just as the FCA looks not only at how a regulated company complies with the rules, but also at the culture, governance, attitude and competence of management and staff, the FCA must be viewed in the same way,” he says the head of politics of a leading company in the city.

UK Finance, the city’s trade authority, says the reforms may not go far enough.

“We remain disappointed [the Treasury] has not yet decided to extend these and other core measures to other financial services regulators, mainly payment systems regulators [part of the FCA] and the Bank of England’s other regulatory functions,” she wrote in a response to the February 8 consultation. “Without this, the review will not deliver a coherent and consistent regulatory framework across the sector.”

The aim of increasing competition should apply to the Bank of England in its role as the UK’s resolution authority when overseeing how bank failures are handled.

The trade association also supports plans to set up a new body to review how regulators carry out cost-benefit analysis, arguing that it would be most effective if the review were done before it was made public.

The review calls for the government to be given the power “to require regulators to review their existing rules where the government believes it is in the public interest to do so”.

UK Finance said it disagreed with the proposed power but said it was not “sufficient” to address all its concerns about regulatory accountability.

READ Concerns about FCA independence and market security remain as the government releases the results of post-Brexit consultations

Regulators themselves also seem to be developing different views on how the government should proceed.

At a conference on February 8, the FCA proposed that it supports Treasury Department proposals to add another objective to the list of statutory obligations – currently protecting consumers, supporting market integrity and promoting competition in the interests of consumers.

“The FCA has a leading reputation for supporting innovation… a secondary competitive objective for UK financial regulators strikes a proper balance that recognizes the important role the FCA plays in supporting the long-term growth of the UK economy as we… continue to deliver on our existing core strategic objectives,” said Sarah Pritchard, Executive Director, Markets.

However, the Bank of England is less sympathetic to the proposals. Without specifically mentioning the review, Governor Andrew Bailey, in a speech on February 10, underscored the importance of ensuring stability in the post-Brexit world.

“We must recognize that we are a leading global financial center. So our goal of financial stability is a global public good. We must therefore continue to be closely involved in shaping international standards and then implement them properly.”

A Bank of England spokesman told Financial News: “We support the Government’s proposals to delegate more responsibility for rules to independent regulators, but recognize the need to ensure appropriate accountability consistent with regulatory independence and our commitment to a to maintain a robust regulatory regime that conforms to international standards.”

It is important to avoid appearing to weaken the bank’s commitment to high standards, which could undermine its international reputation, said a person familiar with the bank.

READ Why the biggest financial regulatory upheaval since the 1980s could end in disaster

Such disagreements are likely to increase in the coming weeks as Brexit moves up the government agenda. It appointed a new Minister for Brexit Opportunities to Cabinet in a reshuffle on February 8 with a mandate to scrap hundreds of previous rules.

Prime Minister Boris Johnson and Chancellor Rishi Sunak are also close to an agreement to overhaul Solvency II rules, the Financial Times reported on February 11, to free the city’s pension and insurance capital for investment in longer-term, innovative industries.

The government began the recruitment process for a new FCA chairman on February 4, a role it said would require “political sensitivity”.

The ad also implied that many of the Future Regulatory Framework Review proposals had already been adopted.

“By reviewing the future regulatory framework, the FCA will take on additional responsibility to set many of the direct regulatory requirements currently set out in retained EU law, within an amended framework set by Government and Parliament,” reads the ad.

To contact the author of this story with feedback or updates, email Justin Cash