MPs have warned today (16 June) that competitiveness should not become a primary objective of financial regulators.
The Treasury Select Committee has said there are opportunities to boost competitiveness through regulatory reform.
But its new report on the future of financial services regulation warned against any inappropriate weakening of the UK’s strong regulatory standards.
Committee chair and MP Mel Stride said: “The financial services sector is at a turning point, with regulators taking on new powers following the UK’s exit from the EU.
“While it is vital that regulators are not leant on to inappropriately water down regulations, and the committee will remain vigilant in this area, there are likely to be real opportunities to lessen regulatory burdens without weakening standards.
“It is also important that the regulators have an objective to promote growth, not just for the financial services sector, but for the wider economy.”
MM Meets Mel Stride: Holding the FCA’s feet to the fire
In the report, the MPs have reaffirmed their commitment to regulatory independence.
They warned they will remain alert for any evidence that regulators are coming under undue pressure from the Treasury to inappropriately weaken standards.
The committee wants to see the regulators take the importance of growing the economy into account.
It recommends that the Financial Conduct Authority and the Prudential Regulation Authority should each be given a secondary objective to promote long-term economic growth.
This objective should reflect the ways in which financial services facilitate economic growth.
That could be by providing capital, credit and insurance to firms outside of the financial services sector.
The committee also recommended that the FCA should have regard for financial inclusion in its rule-making.
The FCA should also consider how to improve its engagement with the poorest consumers. Therefore, the regulator should seek data on the issues vulnerable consumers experience directly.
Yet MPs highlighted that regulators should not be carrying out social policy, or filling the gaps “where the government ought to be stepping in”.
The committee also encourages the FCA to investigate whether there are opportunities for larger firms to be more experimental with innovative products.
That could be by setting aside additional capital to compensate consumers if new products turn out not to benefit consumers as anticipated.
Treasury Select Committee views on the future overall direction of financial services regulation:
- Given the UK has historically exercised significant influence in the framing of EU regulations, Brexit should not in itself be the cause of instant or dramatic changes to financial services regulation in the UK. Nevertheless, there will be opportunities to tailor inherited EU regulations to the UK market, and to seek opportunities for simplification, while being mindful of continued compliance with global standards.
- The Treasury should respect the principle of regulatory independence, and must not pressure the regulators to weaken or water down regulatory standards, or to accept changes to the regulatory framework which could impede the regulators’ ability to achieve their primary objectives.
- The committee will remain alert for any evidence that regulators are coming under undue pressure from the Treasury to inappropriately weaken regulatory standards.
In a recent speech, Boris talked about casting off the shackles of MiFid II. https://youtu.be/Iy0WGBrFdkE (about 18 minutes in).
Given the malfunctioning mess that is the FCA, I think the Treasury very much does need to intervene and force it to put its house in order.
Wot a larf. The new IFPR regs replace a lot of MIFID. So, at the smaller firm end, not only was the capital adequacy minimum raised from £20K or £50K depending on what you do to £75K plus a load of other bits and pieces, plus a full ORSA style self-risk-assessment that life insurance companies must do, but we must have a statement on our remuneration splits, our gender pay gap ratio etc etc. The latter, for example, in the non-FCA world is for companies with greater than 250 staff (I think). Post-covid, we are down to 2.5 staff but in the crazy world of the FCA we should calculate this (infinity is our ratio as we have no women now, so that is completely useful), annually and make it publicly available (more cost for maintaining the website). And on and on it went. 40% of our staff have been working full time on this, Consumer Duty, new AML guidance and all the other mass of new regulation churnded out by Stratford Towers last and this year. Utterly ridiculous.
One has to remember that huge swathes of the MifiD rules were designed by the FCA’s input when we were in the EU and some of the topics it covers are things the FCA has always wanted to do but had never dared to do them – like banning broker research commissions which appears to have backfired. It’s universally hated in Europe and they are seeking to modify their own rules. Meanwhile, unleashed from the EU shackles by Brexit, the FCA have gone into absolute hyperdrive. No firms are happy, and it’s small wonder that the large ones want existing rules to be maintained: not to strangle upstart competition as you may think, but simply no-one has the bandwidth available to reinvent the wheel yet again.
Competition went out of the window years ago. Why do we have consolidators? Similarly, why are all small solicitors merging? Because regulation makes it impossible to survive as a small entity. Poor old Mel Stride is completely out of touch with the amount of change that has been driven by stifling regulation which has been choking the living breath out of the idea of competition.
Don’t misunderstand me, a chunk of regulation is very much to everyone’s benefit. But these days, far too much is just a work creation scheme.
Surely one of the FCA’s key objectives should be the protection of the consumer (without positioning itself as a consumer champion like FOS).
Competition should not be it’s key objective & neither is it a price regulator