FCA defends independence against enhanced Treasury powers
The Financial Conduct Authority (FCA) has warned that proposals to enhance government power over the regulator could threaten its independence.
Under then-Prime Minister Liz Truss’ short tenure in Number 10, the government backed plans to give new powers to the Treasury to overturn certain decisions by financial regulators including the FCA and the Prudential Regulation Authority.
Speaking to the Treasury Committee on 7 November, FCA interim chair Richard Lloyd OBE said that the move was not discussed with the FCA and, while the exact details of the powers had not been confirmed, he feared it had the potential to undermine the regulators’ independence.
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“I would simply say that our international reputation, and indeed our international competitiveness in financial services, is in part built very clearly on the perception and the reality of the independence of regulators”, he said.
“It is built on our very clear objectives, which are set by Parliament, and on our practice of consulting, engaging and making measured rules based on the evidence.”
Lloyd added, “even if it is used very sparingly… the perception that comes with the ability of ministers to direct independent regulators will go to undermining our independence. We are very clear, and have been very clear with ministers, that that is of great concern to us.”
FCA chief Nikhil Rathi agreed and said that although the regulator supported the Financial Services and Markets Bill, including the accountability requirements it outlines, the opportunity for ministers to overrule regulators presents challenges.
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“Inevitably, given the nature of the work we do – you hear from different interests on the Committee – when we make rules, there is nearly always a constituency that is unhappy with our decision, because we are seeking to balance many different interests,” Rathi said.
“If you then have a situation where the unhappy constituency seeks to approach ministers to get our rules overturned, the certainty for all parties, market participants and consumers, is eroded, because at some point you have to be able to get on and implement the decisions that have been taken – decisions for which we are accountable to you, very clearly.”
Both executives also pointed out that the FCA, like all regulators, was established to act in the public interest, making the need for intervention in the public interest seem redundant as a notion.
Lloyd said the UK was in his view the best country in the world in which to do financial services business in, which he said was a reputation “we want to protect”.
“If part of that reputation is built on the independence and effectiveness of our regulators – and, in my view, it is – there is clearly a risk for the competitiveness of our market internationally.”
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