Treasury Committee publishes Government and regulator responses to ‘Future of Financial Services Regulation’ report

07 September 2022

The Committee supported calls for regulators to be given a secondary objective to promote long-term economic growth, and recommended that the FCA should have regard for financial inclusion in its rule-making.

The report, published in June, outlined that competitiveness should not become a primary objective for financial regulators, warned against any inappropriate weakening of the UK’s strong regulatory standards, and reaffirmed its commitment to regulatory independence.

Ahead of Wednesday’s Parliamentary debate on the Financial Services and Markets Bill, the Treasury notes each of the Committee’s recommendations.

In their response, the PRA agrees that independence of the Bank of England is vital to maintaining the effectiveness of financial regulation. The regulator also agrees with the Committee’s assessment that pursuing international competitiveness in the short term by lowering the UK’s strong standards would not result in sustainable economic growth.

The FCA also supports the Committee’s position on regulatory independence, but disagrees with the recommendation that the regulator should ‘have regard’ to financial inclusion, arguing it wouldn’t increase the FCA’s existing ability to act in line with the objectives set for it.

Chair's comment

Commenting on the responses, Rt. Hon. Mel Stride MP, Chair of the Treasury Committee, said:

“Following the UK’s withdrawal from the EU, regulators have taken on new and greater powers. Underpinning our financial services industry is the principle of regulatory independence, as well as the operational independence of the Bank of England. The Committee will remain alert to ensure that regulators are not leant on to inappropriately water down regulations to the detriment of the safety and soundness of our financial services system.”

The report contained the following conclusions and recommendations:

• The Treasury should respect the principle of regulatory independence, and must not pressure the regulators to weaken or water down regulatory standards. 
• There should be a secondary objective for the FCA and the PRA to promote long-term economic growth.
• The Treasury should continue to reject any calls for a growth and/or competitiveness objective to become a primary objective. This would increase any pressure on regulators to trade off competitiveness against resilience, and would undermine the regulators' ability to deliver on their core functions. There is a danger that as memories of the financial crisis fade, its lessons are forgotten.  
• The Treasury should require the FCA to have regard for financial inclusion in its rule-making.
• Regulatory independence is critical for the competitiveness and effectiveness of UK financial services regulation. The host of new accountability mechanisms proposed by the Treasury must be carefully reviewed in this light, to ensure that regulatory independence is not compromised. 
• The FCA should consider how to improve its engagement with the poorest consumers, and must seek data on the issues vulnerable consumers experience directly.

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