The UK government is weighing how strong to make proposed new powers to overrule regulators, ranging from unfettered authority for the Treasury to step in, to an intervention only if approved by Parliament.
The government confirmed last week that it would introduce an “intervention power” to the draft law, which will set the UK’s post-Brexit framework for the financial sector. But people close to the process say there’s still uncertainty over crucial details that will help determine the balance of power between ministers and officials.
At one end of the spectrum, the Treasury could seek a direct power to order the Prudential Regulation Authority and Financial Conduct Authority to make changes, the people said, asking not to be identified discussing private deliberations. That order could even be issued in secret if the Treasury believes it is in the public interest, so Parliament and the public wouldn’t know about the government’s intervention.
At the other extreme, the government could step in only if Parliament approves the measure through a vote, the people said. There could be further checks such as a time-limit and ongoing oversight by lawmakers, according to lawyers.
The potential new call-in power to block actions by watchdogs triggered a highly-charged debate this summer about regulatory independence and perceptions of the UK’s regime to international authorities and investors.
There is support in Parliament and elsewhere for checks to regulatory actions to be introduced to UK law as part of the shift away from the EU, but there are deep divisions about what shape they should take. Liz Truss, the new prime minister, signalled she favored a power being added to the finance bill before it becomes law next year. The Treasury under new Chancellor of the Exchequer Kwasi Kwarteng is now working on the details.
The Treasury is also considering beefing up an incoming requirement for regulators to take competitiveness into their decisions, according to two people familiar with the discussions. It is being made a secondary objective as part of the financial services bill, but there is a view that the language is too weak and should be strengthened to ensure the FCA and PRA give it due consideration after their primary objective of financial stability, the people said.
A spokesperson for the Treasury declined to comment.
Some in the City have lobbied for competitiveness to be a primary objective, but so far ministers have resisted. Andrew Griffith, the new Financial Secretary to the Treasury and City Minister, will play a leading role in shaping any financial reforms. Richard Fuller, the economic secretary to the Treasury, told Parliament last week that regulators would retain their “unambiguous hierarchy” of objectives.
The new government’s push to deregulate and promote growth have sparked concerns among consumer groups.
“Forcing a ‘competitiveness’ objective onto financial regulators turns what should be a watchdog into a cheerleader for speculative risk,” said Marloes Nicholls, head of Policy and Advocacy at Finance Innovation Lab, a charity which promotes financial inclusion. “The proposed ‘call in’ powers only reinforce the impression of a dramatic weakening of standards of the type that preceded the global financial crisis.”
Gina Miller, a financial services campaigner and co-founder of SCM Private LLP, said giving the government an intervention power would make regulation less predictable and undermine certainty for businesses, which could deter inward investment. “We would be seen as an outlier compared to the rest of the world,” she said.
Andrew Bailey, the Bank of England governor, has warned that dramatically increasing parliament’s power over regulators would trigger concerns abroad. He has also said the finance bill as it stands strikes the right balance.
Big Bang 2
Kwarteng told a gathering of senior finance figures last week that he wanted to create a “Big Bang 2” to introduce bold measures to boost the City of London. He expressed frustration with the slow progress of post-Brexit change and has fired the Treasury’s top civil servant, Tom Scholar, in what appeared to be frustration over the department’s resistance to adopting different policies.
Barney Reynolds, global head of the financial services industry group at law firm Shearman & Sterling, said a call-in power could be made to work as long as it is “delicately done”.
“It’s a shame it’s come to this or that it appears to be needed,” Reynolds said. “The system itself as a whole has been very slow to adapt to the post-Brexit world, there has been a lot of resistance to change.”
The Treasury’s focus in the past week has been thrashing out an emergency energy support package, but more details about financial reforms are set to be laid out at the Conservative Party’s conference in Birmingham in early October, a person familiar with the plans said.