FCA chair warns on dangers of giving government intervention powers
The chair of the Financial Conduct Authority (FCA) has warned on the dangers of giving the government powers to intervene in the City watchdog’s processes.
In a speech delivered at the Centre for Commercial Law Studies, Queen Mary University of London, Charles Randell said such powers – proposed as part of the upcoming Financial Services and Markets Bill – could lead to the loss of independence and agility at the regulator.
“The government has said that it would only use a power to direct the FCA to review rules in exceptional circumstances. Nevertheless, there is always the risk that ‘exceptional circumstances’ turn out to be surprisingly frequent, or that the mere existence of the power could bring pressure to bear on the FCA to change its priorities,” he noted.
Currently, the FCA sets its priorities and allocates resources based on its public interest objectives. However, if directed by ministers, the regulator may need to take away resources from critical issues, he said, adding that it “would undermine our independent judgement and accountability”.
There is also the risk that this would create a channel for lobbying by those who want to use politicians to get the rules changed in their favour.
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He added: “As I have said, we have enjoyed strong and effective partnerships with current Treasury ministers to address issues of EU withdrawal, Covid-19 and the financial sanctions to respond to Russia’s war of aggression in Ukraine. But legislation should be robust enough to cope with the political cycle, which can bring changes of ministers and changes of government.
“In the current framework, the FCA as an independent regulator with a strong consumer focus provides the balance that is needed to reduce the risk of lobbying and interference. The future regulatory framework must preserve that balance and reinforce the ability of parliament to play its role in holding regulators and the government to account.”
Emphasising the need for a strong and independent financial conduct regulator, Randell admitted that changes to the relationships between the government, parliament and regulators were needed, particularly following the UK’s exit from the European Union.
And while it is important for parliament to have more effective oversight of the FCA’s work, Randell also highlighted the importance of staying independent.
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In the speech, which touched on number of topics including the importance of policy coherence and thoughts on regulating crypto, he welcomed the government’s understanding that a new objective for the regulators to facilitate the long-term growth of the UK economy shouldn’t conflict with the primary goal of protecting consumers.
“I don’t think that we can achieve long term economic growth if we put the interests of the financial services industry ahead of the interests of other people in our society – producing an island of prosperous financial services professionals in a sea of inequality. That type of growth would be the opposite of levelling up,” he added.
“We saw that type of growth in Ireland and Iceland before the financial crisis – and to only a somewhat lesser extent here in the UK. It leads to economic and social instability and damage. The damage is often borne by those least able to bear it, not by those who inflict it.”
The Financial Services and Markets Bill, which aims to replace EU financial services regulation, was introduced as part of the Queen’s Speech earlier this month.
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