Financial Conduct Authority - Treasury Contents

Written evidence submitted by HB Markets plc


1. Q.  The proposals are predicated on an assumption that the UK (as well as other member states) wishes to continue with its increasingly submissive position within Europe. Has the UK electorate decided or been given the opportunity to decide on this state of affairs?

A.  No. In 2010, a Referendum allowed for UK citizens to decide on proportional representation. Calls for the same in relation to ceding the powers of Westminster to Europe have gone unanswered. This is not a Europhobic statement but rather a query as to the state of UK democracy which itself serves to alert the UK electorate to consider the same as well considering the ability of their elected politicians in Westminster to take genuine executive action unfettered by external interference. One wonders to what extent the proposals have been actually decided upon by elected representatives in Westminster as opposed to being handed down by the EU. Figure 1.A on page 8 of the Paper omits reference to these EU regulations. We wonder why.

2. Q.  The UK government talks about retrieving some of the UK's decision making powers which have been handed over to Europe during the last 40 years. These proposals if put into effect, will have the opposite effect and place yet more executive power in the hands of European bureaucrats as well as increase costs still further. On what basis is this good for the UK and, more particularly, good for UK savers?

A.  We doubt that it is. It is patently clear that UK financial institutions are both active and successful worldwide. On the assumption that firm rules relating to transparency and financial solvency are in place, it should be left to competition to ensure that excellent quality products and services are offered. This would be similar to what has occurred in the car industry over the last 100 years ie universal standards of design and safety are agreed then individual manufacturers design their best products based on these.

3. Q.  What is financial stability? How will this be measured? An apparently good looking investment can with hindsight appear to have been ill-advised

A.  Indeed. Prescribed Costs, Access and Terms have not prevented many ISA products invested in an FTSE All Share tracker fund losing money over the last 12 years ie CAT regulations did not stop customers losing money in the longer term.

4. Q.  How will the proposals be funded? Has anyone worked out how many new staff will be required to achieve this new structure?

A.  We are not aware of what the costs might be but suspect these will be large. On the other side of the coin, it would appear to be a system which will provide jobs for unemployed people and that can only be commendable. No doubt the government has done its sums and worked out that the saving in benefits would outweigh the staff costs.

5. Q.  How will globalisation work when countries world wide have diverse fiscal and monetary policies? The euro-zone hasn't worked. What is the rationale therefore for an even larger entity with such diversity? How will consensus be achieved? Many still complain that basis upon which we went into Europe as flawed and ill-conceived. Does it make sense to build an even larger enterprise based on a premise which some argue was never viable? And why the reverence of all things large?

A. We do not know. In our opinion, it would be far better to focus on people rather than ever larger organisations. Smaller groups of people with day-to-day responsibility and encouraged to take an interest in promoting sound financial and regulatory conduct represents our preferred option.

6. Q.  FPC: one really has to question its independence. But even suggestions from respondents, for example, to have an independent chair and NEDS appointed by the Treasury cannot remove the inevitable conflicts that will arise. How will the Treasury make decisions about who to appoint? Will its decisions be independent of party politics?

A.  On the face of it, probably yes to the last query but this does not change the ongoing risk of a conflict of interest and the notion that layer upon layer of regulation combined with micromanagement by outsiders does not represent the optimal way to ensure financial stability as well as top quality products and services for customers.

7. Q.  Valid objections to tri-partite governance of regulation between the FSA, HM Treasury and the Bank of England have been voiced since the 2008 crisis. With this in mind, is there any real difference in what is being proposed now with the FPC, the PRA and the FCA. And that is only at local level. What are the costs of ensuring a coherent interaction? Who will monitor this inter-action?

A.  Again more questions than answers. It all seems rather like bureaucracy for bureaucracy's sake—much centrally supplied by the EU to be subsumed into legislation ostensibly created by elected UK decision makers. Due to previous and often obscure treaties, this is doubtless legal but it is far less clear whether it is democratic.

8. Q.  The PRA will be authorised to judge safety and soundness of individual firms and to take supervisory and regulatory action. How can this authority exist independently of the FCA's supervisory role over conduct which is all too often the root of problems in firms?

A.  We do not know but we do see the distinct possibility that this will lead to confusion and higher costs without necessarily giving rise to meaningful benefits for the UK customer.


Whilst we agree that putting the Bank of England at the centre of the new regulatory model is good in principle, the proposals as they stand bring layer upon layer of new complexity so that it is difficult if not impossible to gauge potential benefits and almost certainly increased costs.

The success of the new framework will significantly depend on streamlined cooperation in order to bring improvements. Much will depend on the PRA and CPMA, in particular, and their ability to effectively regulate and cooperate without becoming overbearing.

We have real doubts about whether the changes outlined will actually result in measurable improvements and fear that, on the contrary, the new structure may prove fruitless in its quest to improve regulation and financial stability.

Over and above these issues remains the influx of EU-sourced regulation trickling into each and every aspect of our legislation. We are not advocates of the notion that "bigger is always better". In the context of financial regulation, it is our opinion that a proposal based on domestically agreed simple concepts of transparency along with the promotion of an active, competitive marketplace would represent a better option.

In recognising the unlikelihood of this occurring, we hope that the direction now seemingly being taken will result in a more stable, dynamic regulatory framework for the UK and one which supports its world class financial institutions and services rather than stifles them.

October 2011

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