Britain’s departure from the European Union has created a unique opportunity to re-shape our regulatory framework for financial services; setting the sector up for continued success in the years to come and maintaining the UK’s position as a globally competitive financial centre.
With Brexit complete – and many regulatory powers returning to the UK for the first time in decades – it is crucial that we now get the new framework for financial services regulation right.
It is difficult to overstate the importance of financial services to the UK economy. Employing over one million people, two thirds of which are employed outside of London, the sector is not only vital for its contribution to the country’s public finances, but also as a driver and facilitator of regional and local economic prosperity.
The benefits of financial services extend well beyond the historic walls of the Square Mile and its success will be important in supporting the economy as the country looks to build back better from coronavirus and deliver on the Conservative Government’s manifesto commitment to ‘level up’ regions across the UK.
Indeed, the Government is wasting no time in realising its ambition to strengthen the UK’s position as a leading global financial hub.
The Treasury is currently embarked on a number of strategic reviews, including of our listings regime and on how to make the UK, which is already a global leader in fintech, the prime global destination for innovators. This will attract international investment and talent, creating jobs and boosting our whole economy in the process.
It’s important to remember that this will not be a regulatory ‘race to the bottom’. As the Chancellor made clear when setting out his vision for the future of financial services in the UK, we will maintain the highest global standards as we look to shape the future of the industry.
Therefore, getting the framework right is not just about control of these new powers. We must also establish an effective accountability mechanism, alongside necessary checks and balances to ensure the rules that govern the sector are best suited to our own domestic objectives.
The Treasury has been considering this very question as part of its financial services regulatory framework review, which is a wide-ranging consultation looking at how financial firms should operate in future.
Whilst we should not look to simply replicate the EU system, we must ensure regulators remain politically accountable, operating in the best interest of the wider economy and financial services’ firms. Parliament should be key to this.
In recent months, this topic has been a key focus of the All-Party Parliamentary Group (APPG) on Financial Markets and Services, which I chair.
After a sector-wide consultation, the APPG has now published a report which sets out how Parliament can take a central role by helping guide and scrutinise regulators, while balancing the needs of the sector against wider public policy aims, such as inclusive economic growth and the UK’s Net Zero ambitions.
At present, Parliament is not set-up to carry out this role. Scrutiny of the sector currently lies with the Treasury Committee – but its remit is so broad that it understandably isn’t in a position to carry out sustained and detailed oversight of technical regulations.
The APPG’s report concludes that a strong case exists for a new standing Joint Committee of both Houses of Parliament, with a specific remit for overseeing the financial services sector.
This Committee should be well equipped with a high level of technical support through expert recruitment, a wide-ranging advisory network and effective secondments.
I believe that such a Committee will provide appropriate political accountability and scrutiny, help avoid ill-judged additional regulations, often implemented without consideration of their broader impact, and give proper support to one of our most successful industries.
We have been handed a unique opportunity to restructure our regulatory system for the better – we must take it and help prepare Britain for its new global future.
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