We agree with the Treasury that the body of EU financial services rules that was on-shored during the process of leaving the EU should be moved into the regulators’ rule books. Keeping rules in statute could require Parliament to amend or pass new legislation every time that the regulators wish to make changes to them. This would be resource-intensive and impractical. The regulators have a key role to play in designing and developing the rules with appropriate Parliamentary oversight.
We understand the need for Treasury Ministers to be well informed of the regulators’ policy intentions as a matter of routine. However, we have not been provided with compelling evidence to justify changing the law to allow Ministers the absolute right to see financial services regulators’ policy proposals before they are published for consultation, as opposed to the current arrangements whereby significant interaction between Ministers and regulators happens informally as a matter of routine. By doing so, the perception of regulatory independence from government could be damaged. The independence of regulators to be free from political interference is one of the key aspects of UK financial services regulation, and it is, arguably, one of the reasons why the UK is a world-leading financial centre. Regulators must continue to be free to choose what they share with the Treasury in this respect.
If done with a deft approach, there may be a role for activity-based principles or “have regards” to allow the Government to instruct the regulators, at a more micro level, how it wishes them to approach specific types of business sector. The Government can already instruct regulators more broadly on how to do this through remit letters. But the Government should be sparing in its approach: the strategic and operational objectives, combined with principles and “have regards” that are set out in their remit letters, are already numerous and expanding, to the point where regulators have to choose which to prioritise on a regular basis when drafting new policy proposals. The creation of too many activity-based principles would add a further layer of issues to which regulators must have regard.
We will only be able to conclude with more certainty on the merits or risks of activity-based regulation once the Government provides more details on their proposals in its next consultation.
We believe that effective scrutiny of regulatory proposals should be carried out through a targeted approach. Each new proposal made by the Financial Conduct Authority or by the Prudential Regulatory Authority under the future financial services regulatory framework would be put out for consultation. Industry stakeholders and civil society groups would have an opportunity to put forward views, as would Parliament, both through the select committee system and through the work of individual Members of either House. If any matter of public interest were to arise that we deemed sufficiently important to scrutinise in more detail, or indeed challenge, we would do so.
We do not see a clear need for the creation of a new committee or a new independent body to carry out this work. It would seem a more efficient use of Parliamentary resources to use the structures that are already available in both Houses. Although the scrutiny task will be substantial, it will be an extended one as new regulations are drafted, rather than a short-term surge of activity. There is already expertise in select committees in the Commons and the Lords, and both have the power to appoint specialist advisers and commission research.