Brexit is no reason to radically alter British financial regulation and regulators should not be forced to water down rules to boost London’s competitiveness, or stray from global standards, a UK parliamentary committee report said on Thursday.
Britain’s departure from the European Union largely cut off its huge financial sector from the bloc and the country is reviewing rules inherited from the EU amid calls from banks for greater emphasis on keeping City of London globally competitive.
The report, however, advocates caution.
“Simplifying financial regulation and tailoring it appropriately to the UK market must be approached with care, and without compromising regulatory independence,” a report from parliament’s Treasury Select Committee said.
The finance ministry should be “sparing” in the use of its new power to require regulators to review rules.
“We will remain alert for any evidence that regulators are coming under undue pressure from the Treasury to inappropriately weaken regulatory standards.”
Financial services minister John Glen has said there will be no “bonfire of regulations” or ditching of global standards, but has proposed giving regulators a secondary objective of keeping finance globally competitive and aiding economic growth.
The new objective should only include aiding growth because the pursuit of competitiveness risked weakening Britain’s strong regulatory standards, the report said.
Regulators should speed up authorizations of new firms such as fintech and crypto, and report annually on how they promote financial inclusion and help vulnerable consumers, the report recommended.
Regulators could try allowing big financial firms to experiment with new products as long as they set aside more capital to compensate consumers if they go wrong, it added.
Large banks and insurers can use internal models to determine capital requirements, while smaller firms must use more conservative rules set by regulators.
The report said the Bank of England should consider reducing this advantage for big firms to strengthen competition and check whether internal models actually cover risks sufficiently.
(Reporting by Huw Jones; editing by Tomasz Janowski)
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