CHAPTER 5: Accountability, transparency
and engagement
306. The financial services industry is going
to be subject to more intensive supervision than ever before.
There are good reasons for this but it is important that the wide
remits and powerful tools the new regulatory bodies are being
granted are paired with increased transparency, strong governance
and clear lines of accountability.
Governance of the Bank
307. The governance structures within the Bank
of England have recently been the subject of a detailed report
by the House of Commons Treasury Committee.[241]
That committee concluded that the role of the Court of the Bank
of England needed to be substantially enhanced. It suggested replacing
the Court with a new smaller supervisory board with expert members.
The new Board would have new responsibilities including conducting
ex-post reviews of the Bank's performance in the prudential and
monetary fields. The Board would have the responsibilities that
the draft Bill gives the Court for setting the Bank's financial
stability strategy. It would have sight of all the papers considered
by the MPC and FPC and the Chairman of the Board would observe MPC
and FPC meetings.
308. The Treasury Committee recommended that
the new Board would be responsible for responding to requests
for information by Parliament and that it should take a more open
approach than the Court.
309. The evidence we received in the course
of our inquiry indicated that the House of Commons Treasury Committee
was right to conclude that the governance structures within the
Bank need considerable strengthening. Our recommendations about
the role of the FPC add weight to this. We support the idea that
the Court should be replaced by a Supervisory Board with expert
members some of whom should have experience in prudential policy.
The new Supervisory Board would be empowered to scrutinise work
of its sub-committees and conduct retrospective reviews of decisions
taken by the FPC. The reforms in the draft Bill give the Bank
significant new powers in macro- and micro- prudential policy.
These powers must be paired with reforms to ensure that clear
accountability processes are in place. In addition we recommend
that the Chairman of the Supervisory Board should be consulted
over the appointment of the Governor.
Scrutiny of macro-prudential
tools
310. The FPC will be given its key instruments,
the macro-prudential tools, in secondary legislation. The FPC's
toolkit will be largely untested. Some of the tools being considered
will put considerable new burdens on banks and other firms. Some
may be different from the tools being deployed in other countries.
It is of utmost importance that Parliament has a proper chance
to consider the impact of each tool in some detail before a decision
is made about whether to grant the tool to the FPC.
311. Normally, Parliament will be asked to grant
each macro-prudential tool through approval of a draft affirmative
instrument or, in urgent cases, the 28-day "made affirmative"
procedure. The made affirmative procedure involves less parliamentary
control. The tool could be used the day it is laid before Parliament
and therefore before any scrutiny has taken place. If however
approval does not follow within 28 days of the instrument being
laid, it would be withdrawn. The Government views the made affirmative
procedure as a last resort believing it will "rarely—if
ever—need to be used".[242]
312. The Treasury Committee noted that approval
of draft affirmative instruments in the House of Commons would
normally only require a 90-minute debate in a General Committee
and a decision without a debate in the House. It recommended that
it should have sight of the text of draft orders two months before
they are laid in order to report to the House of Commons in time
to inform debate. It also recommended a requirement that debates
on orders prescribing macro-prudential measures be held on the
floor of the House of Commons, free of the 90-minute restriction.[243]
313. We agree that there should be a system of
enhanced parliamentary scrutiny of these important tools. This
should apply in both Houses. In para 217 we recommended an enhanced
procedure for scrutinising the statutory instruments that will
define the PRA's regulatory perimeter. This procedure was based
on section 11 of the Public Bodies Act 2011. This would provide
for consideration by the relevant select committees in both Houses
and where appropriate would place a duty on the Treasury to consider
those committees' recommendations before laying the final instrument.
314. We are attracted to a similar procedure
for the statutory instruments containing macro-prudential tools.
The role given to designated committees of both Houses would allow
the Treasury Committee and the appropriate committee in the Lords
to bring expertise to bear and trigger the enhanced procedure
only if necessary. The enhanced procedure would place a duty on
the Minister to consider the reports of each committee and make
material changes to the Order if those reports persuade him change
is necessary.
315. The macro-prudential tools to be used
by the FPC are of considerable importance. Some of the tools being
considered will have a direct effect on the economic circumstances
of constituents. Parliament must have an opportunity properly
to scrutinise these powers. On the other hand there must be flexibility
to grant the FPC new tools quickly in rare and urgent circumstances.
In non-urgent cases we recommend that the tools be subject to
an enhanced affirmative procedure similar to that set out in Section
11 of the Public Bodies Act 2011. This would provide for consideration
by the relevant select committees in both Houses and where appropriate
would place a duty on the Treasury to consider those committees'
recommendations before laying the final instrument.
316. Once Parliament has granted the FPC the
power to use a specific macro-prudential tool, it will have that
tool at its disposal indefinitely unless the Government decides
to lay an order revoking it. The British Bankers' Association
suggested that there should be sunset clauses attached to each
instrument so that Parliament regularly reviews the FPC's toolkit.[244]
Review would be informed by the FPC's reports on its use of macro-prudential
tools which we recommend be included in its bi-annual Financial
Stability Reports (see para 319). All statutory instruments
aimed at granting macro-prudential tools to the FPC should contain
a sunset clause of one parliament. This will allow ongoing parliamentary
scrutiny of the FPC's toolkit.
Transparency of the FPC
317. For the industry, consumer groups and Parliament
to be able to understand and scrutinise the work of the FPC it
will need to operate in an open and transparent manner. The arrangements
proposed in the draft Bill are similar to the arrangements for
the MPC. The FPC will publish bi-annual Financial Stability
Reports and will release detailed minutes of its quarterly meetings
at which it will discuss the state of financial stability and
decide how to deploy macro-prudential tools.
318. However, the FPC is a committee of the Court
which has shown worrying signs of a lack of transparency by refusing
to provide the Treasury Committee with minutes of Court meetings
relating to the financial crisis. We hope the FPC takes a more
open approach to requests for information.[245]
319. We welcome the publication of detailed minutes
and voting records for the FPC's quarterly meetings. The bi-annual
Financial Stability Reports should assess the state of financial
stability against the early warning indicators which we endorsed
at para 53, and report the effectiveness of macro-prudential tools
deployed.
Membership of the FPC
320. The majority of the FPC will be Bank of
England executives—the Governor, three Deputy Governors
(including the chief executive of the PRA) and two others from
within the Bank. Four external members will be appointed by the
Chancellor. The FCA chief executive will be a member and there
will also be a non-voting representative of the Treasury.[246]
321. This contrasts with the PRA and FCA boards
which will both have a majority of non-executive directors. The
House of Commons Treasury Committee recommended that the FPC have
a majority of members from outside the Bank. It argued that this
would help minimise the risk of "group think". The Treasury
Committee wrote: "The role of external members on the Bank's
Committees will be crucial to the success of the proposals ...
We would expect that external members will not always agree
with the internal Bank executives, but we believe that there should
be room for such creative tension. Whatever the precise numbers,
the external members of both the FPC and MPC should be in
the majority".[247]
322. Together the four external members of the
FPC are expected to "have recent and relevant financial sector
experience, including expertise in non-bank areas such as insurance".[248]
Legal and General suggested a specific requirement that the Treasury
must satisfy itself that the membership of the FPC as a whole
has a sufficient breadth of knowledge or experience across the
banking, insurance and investment management sectors.[249]
The Association of British Insurers said there should be a requirement
that one of the external members has insurance expertise.[250]
323. It may however be hard to recruit people
of the right calibre and experience to sit on the FPC. Experience
of working in the industry will be crucial but potential conflicts
of interest could bar many with jobs in the industry from serving
on the FPC. Professor Charles Goodhart said:
"One of the difficulties is that getting
the right external people on to the FPC may be more difficult
than for the MPC. You want people who are expert in commercial
and financial affairs. If they are on the FPC they really cannot
do anything else, whereas in the MPC the experts who have
been appointed—and I agree are primarily needed—are
basically academic economists who can serve on the MPC without
difficulty. Getting the right kind of commercially savvy people
on to the FPC is going to be very much harder".[251]
324. Although little can probably be done about
salary differentials between the FPC and the City, the Treasury
Committee urged the Bank to continue what it described as a flexible
interpretation of its code of conduct on FPC appointments:
"There is a risk that the code of conduct
for members of the FPC may prevent or discourage the appointment
of experienced industry practitioners whose membership would be
of benefit. We have heard evidence that the interpretation of
the FPC code of conduct has, to date, been flexible. We welcome
this, but fear that there is still a risk that the rules are too
tight and may prevent suitable candidates even being considered
for appointment. The same concerns apply in the case of the MPC.
We recommend that the Bank change its emphasis so that the appointment
of industry practitioners becomes easier. This will put more onus
on the committees, led by their chairmen, themselves to deal with
any conflicts of interest as they arise. In order to do so they
should follow best practice of private sector boards".[252]
325. FPC membership must include experts from
across the financial services industry including insurance and
the wider economy. The draft Bill should be amended so that there
are a majority of non-executives on the FPC. The interpretation
of the FPC code of conduct should not prevent individuals with
current and recent industry experience from sitting on the FPC
but the FPC should develop clear protocols for dealing with conflicts
of interest as they arise.
Accountability and engagement
of the PRA and the FCA
TRANSPARENCY
326. We expect that committees of both Houses
will want regularly to engage with the new regulators. In order
for Parliament to hold the regulators to account they will have
to operate in a transparent manner. We welcome the fact that the
PRA and FCA will be subject to NAO audit.
327. We also hope that both bodies will publish
Board agendas and minutes. The FSA currently publishes a summary
of its board minutes (with commercially sensitive information
removed). In evidence to the Treasury Committee, Lord Turner said
that:
"You could require that FCA board minutes,
to a much greater extent than at the moment, where they deal with
a direct public policy issue, are published and set out clearly
the arguments for and against, in the way that the MPC minutes
or the FPC minutes do".[253]
328. We recommend that the draft Bill be amended
to require the FCA to publish Board & Panel minutes and agendas,
where possible and appropriate. Where the FCA board has considered
an issue of public policy the minutes should set out clearly the
arguments for and against the policy.
329. The PRA board meetings will largely concern
discussions of individual companies. This may mean that a great
deal of material would be redacted before publication. Nonetheless
the PRA should publish those parts of Board agendas and minutes
that are not commercially sensitive so as to give an indication
of the nature of its work.
330. Section 348 of the Financial Services and
Markets Act relates to "Restrictions on disclosure of confidential
information by [the FSA]". That section will be re-enacted
in the draft Bill and restricts considerably what information
the PRA and FCA will be able to disclose. This could impact on
the information available to Parliament and the information available
to firms and consumers. The Government is constrained in its ability
to amend section 348 as it enacts EU law but witnesses suggested
that the UK had gold-plated the relevant directives.[254]
Consumer groups called on the Treasury to undertake a review of
section 348 in order to identify areas where the regulators can
be more transparent.[255]
Mark Hoban MP told us that the Treasury is currently
looking at the issue.[256]
We look forward to the outcome of the Treasury's review on
section 348 of the Financial Services and Markets Act. This section
should not be retained as currently drafted. Neither regulator
should be unnecessarily restricted from disclosing information.
Section 348 should be amended to make it as unrestrictive as is
possible within the confines of EU law.
ENGAGING WITH THE INDUSTRY AND CONSUMERS
331. Sections 9 and 10 of the Financial Services
and Markets Act 2000 require the FSA to establish practitioner
and consumer panels to represent the interest groups affected
by its activities. The FSA has also voluntarily established a
third panel, for smaller business practitioners.
332. Under the draft Bill, the FCA will retain
the FSA's duties to establish practitioner and consumer panels,
will be statutorily obliged to also establish a smaller business
practitioner panel and will also retain the FSA's duty to consider
representations made by its statutory panels.[257]
However, although the draft Bill places the PRA under a duty to
establish arrangements for engaging with practitioners (and, potentially,
other persons affected by the PRA), it says only that such arrangements
"may include the establishment of such panels as the PRA
thinks fit". It does not further specify how the PRA should
fulfil this duty.[258]
333. Several witnesses suggested that the draft
Bill should require the Bank to establish a PRA practitioner panel.[259]
Deloitte argued that a permanent practitioner panel would be preferable
to ad-hoc consultation as the panel would build-up knowledge of
the PRA's approach.[260]
The Financial Services Practitioner Panel also argued that panels
were preferable on the basis that they provided regular input.[261]
334. The Bank of England made clear that it does
not intend to establish a practitioner panel for the PRA. It described
the FSA's panels as "essentially legacies of the old self-regulatory
arrangements that preceded FSMA".[262]
Sir Mervyn King told us that although the Bank intended to
consult industry, it was not accountable to industry.[263]
He explained that the Bank was "opposed to statutory practitioner
panels but not consultation"[264]
and that its intention was to consult widely "with a different
group of people each time", tailored to the issue in hand,
rather than relying on the fixed membership of a statutory panel.[265]
Hector Sants echoed this but further argued that the existence
of statutory panels would "create the perception of a relationship
which undermines the independence of judgment of the regulator".[266]
335. The draft Bill does not place a duty on
the PRA to engage directly with consumers, although it is required
to consult with the FCA on matters that may have an adverse effect
on FCA objectives. The Government has stated that this is because
the PRA's remit of prudential issues does not require direct consumer
consultation, and it is more appropriate for the PRA to consult
directly with the FCA on such issues.[267]
Hector Sants told us that "if it was necessary to have a
consumer input then we would definitely seek it".[268]
Nevertheless, Mr Adam Philips, Chairman of the Financial
Services Consumer Panel, suggested that certain areas of the PRA's
remit (such as mortgages and insurance) would benefit from consumer
interest input into decision-making.[269]
He argued that without a consumer panel there would be "a
significant weakening of the quality of input into [PRA] decisions".[270]
336. While we consider that it is vital for
the PRA to consult with practitioners, and as far as necessary,
consumers, we believe it is right that the PRA should not be obliged
by legislation to establish panels on the same model as the FCA.
In particular, we are concerned that an obligation to create such
panels could lead to regulatory capture. However, in the absence
of panels it is even more important for the PRA to demonstrate
that it is undertaking fair and adequate consultation. We are
concerned that there is not yet clarity on how the PRA intends
to go about this. We recommend that details of the proposed consultation
arrangements are made available for consideration alongside scrutiny
of the Bill in Parliament. The PRA should, in addition to its
duty to publish details of consultation arrangements, also have
a duty to report annually on its consultation activities.
337. If statutory panels are not appointed, it
is even more important for the PRA's Board to include individuals
with the appropriate expertise to properly assess the PRA's work
in relation to the sectors it regulates. The draft Bill provides
for the governing body of the PRA to include a Chair (the Governor
of the Bank of England), the PRA chief executive (the Bank's Deputy
Governor for prudential regulation), the Bank's Deputy Governor
for Financial Stability, and the Chief Executive of the FCA. The
draft Bill also states that the majority of the members of the
governing body must be non-executive members, and provides for
the appointment of further members by the Bank, with the approval
of the Treasury.[271]
The Government noted that respondents from the insurance sector
to its June 2011 consultation had called for insurance expertise
to be explicitly represented on the PRA Board:
"The PRA board must provide a robust challenge
to the executive. The legislative requirement for a non-executive
majority on the board will help, but it is essential that the
board has the right balance of expertise, and the Government expects
that the Bank will ensure that this is the case".[272]
338. The PRA Board must have a balance of
expertise reflecting the sectors regulated by the PRA. The draft
Bill should make particular provision for at least one member
of the Board to have specialist expertise in the area of insurance.
The distinct nature of the insurance role of the PRA has been
explicitly recognised through an entire separate objective—it
only follows that the prescribed membership of the Board should
reflect this responsibility.
Dealing with complaints
339. The Financial Services and Markets Act requires
the FSA to have an internal complaints procedure and also to make
arrangements for the investigation of eligible complaints arising
in connection with the exercise of, or failure to exercise, any
of its non-legislative functions.[273]
The FSA fulfilled the latter requirement by establishing the independent
Office of the Complaints Commissioner (OCC), where complainants
dissatisfied with the outcome of the internal procedure can pursue
their grievance.
340. The draft Bill imposes requirements on both
the PRA and the FCA to establish complaints schemes.[274]
However, although the FCA investigator is required to be independent
and have his appointment approved by the Treasury (as is the case
for the OCC at present), the PRA is required neither to appoint
from outside the Bank, nor to have the appointment approved by
the Treasury. The draft Bill does however state that the investigator
must be free at all times to act independently of the PRA.[275]
The Government has stated that "the complaints scheme deals
with operational matters (rather than regulatory judgements),
and for the scheme to be run by the Bank is consistent with the
PRA's position within the Bank of England group".[276]
341. The OCC argued that the complaints scheme
for both regulators should be totally independent, with no connection
to the regulators or the Bank.[277]
In the OCC's view this is particularly important first because
the FCA and PRA will have legal immunity for issues relating to
negligence, etc.[278]
and secondly because the regulators may struggle to adapt to the
new regulatory culture, with a risk of "failing to maintain
adequate records, and not explaining the rationale behind decisions
[that] will leave the PRA open to claims of bias, lack of integrity
or negligence".[279]
342. We also heard arguments in favour of a single
complaints commissioner shared by the FCA and PRA. The Investment
Management Association believed this was necessary to prevent
complaints involving coordination between the PRA and FCA from
falling between two stools.[280]
The single complaints system model was also supported by the Financial
Services Practitioner Panel.[281]
The OCC told us that separate complaints mechanisms would not
only "involve more cost"[282]
but could also make complaints harder to resolve:
"if you have a complaint, for example, against
the FCA, they may use as a partial explanation the policy of the
PRA, who would have a different Complaints Commissioner, not truly
independent ... if the FCA use, as part of their cover for what
they did or did not do, a policy of the PRA, who in turn may blame
the FPC, I can see there being problems".[283]
343. Given the shift in regulatory architecture
and culture, it is vitally important for the new regulatory bodies
to have effective, independent complaints systems. The arrangements
in the draft Bill do not provide for a sufficiently independent
system at the PRA. We believe that the PRA should, mirroring arrangements
under the current system, have an independent complaints commissioner
whose appointment must be confirmed by the Treasury. In order
to ensure that complaints concerning co-ordination between the
PRA and FCA are properly handled and resolved, we recommend a
single complaints commissioner and system covering both the FCA
and the PRA.
Appealing regulatory decisions
344. Judgement-led supervision will mean a more
intense and invasive regulatory approach. The new product intervention
powers are significant new tools. An increase in the regulatory
powers must be balanced with a clear route for appeal and review.
345. The draft Bill allows regulated firms to
appeal PRA or FCA decisions at Tribunal (a collection of specialist
judicial bodies with responsibility for deciding disputes in particular
areas of law). The Financial Services and Markets Act specifies
that, for the purposes of its provisions, "tribunal"
means the Upper Tribunal, the body that otherwise considers appeals
against rulings by the First-Tier Tribunal.[284]
346. In certain cases the draft Bill limits the
actions available to the Tribunal. A distinction is made between
disciplinary matters or those involving specific third party rights,[285]
and other cases, generally "supervisory action taken in pursuance
of wider public-policy aims such as consumer protection",[286]
(for example, a decision by the PRA to vary a person's permission
to carry on regulated activities). In the latter set of cases,
if the Tribunal chooses not to uphold the decision of the regulator
it will not usually be able to substitute its own opinion. It
will instead be limited to referring the decision back to the
regulator with a direction to reconsider.[287]
The draft Bill does not place a duty on the regulator to explain
its reasons if it does not accept the decision of the Tribunal.
347. The British Bankers' Association raised
concerns that this limitation would lead to a "potentially
toothless review process", representing a serious erosion
of firms' rights to an independent review of contested decisions.[288]
The Government has stated that the arrangements provide an appropriate
balance between the rights of those affected by supervisory decisions
and the fact that, in line with the principal of judgement based
regulation, "the regulators are best placed to determine
the nature of the regulatory action which should be taken".[289]
This view was echoed by Hector Sants, discussing the PRA:
"Asking another set of individuals who are
not technical experts in that area to second-guess the judgment,
as opposed to the process, would to some degree be contradictory
to the basic intent of the proposition ... We just need to think
through the whole philosophy of what we have tried to do here
and go back to the core question: do you want the regulator only
to make decisions on observed facts so that it can defend itself
to the Court, or do you want it to be brave and ask the question,
"I don't like that business model, it might fail in the future
and I will challenge the bank's management as to whether it should
persist with that business model"?"[290]
348. We acknowledge the concerns that in certain
cases the Upper Tribunal will be confined to referring contested
decisions back to the regulators, rather than substituting its
own opinion. However, we believe that the PRA or FCA, as the regulators,
will remain better placed to reach an informed judgement. Allowing
the Tribunal to substitute its own opinion for that of the regulator
would undermine the principle of judgement-based regulation.
Reports on regulatory failure
349. There is always a possibility that either
of the regulators may fail to meet their objectives. It is important
that if and when this happens there is a thorough investigation
to ascertain why the failures occurred and what lessons can be
learnt from them. The value of such a report is demonstrated by
the very recently published report by the FSA on the failure of
RBS. It should be standard practice to publish a report after
major regulatory failure.
350. The draft Bill includes requirements for
both the FCA and the PRA to investigate and report on regulatory
failures. There are however concerns about the criteria set out
to trigger an investigation and how the FCA should balance the
requirement to report on regulatory failure with the requirements
to enforce regulatory action against firms associated with the
event where the regulator is said to have failed.
351. The FCA must carry out an investigation
where two triggers have been met:
· that, in the assessment of the FCA, there
has been an adverse impact on any of its objectives; and
· that regulatory failure has been a possible
contributing factor.[291]
352. The first trigger would include events that:
· indicated a significant failure to secure
an appropriate degree of protection for consumers;
· had or could have had a significant adverse
effect on the integrity of the UK financial system;
· had or could have had a significant adverse
effect on efficiency and choice in the market for the services;
· caused or could have caused a significant
restriction in competition in the provision of those services.[292]
353. The PRA must carry out an investigation
where the following triggers have been met:
· where public funds have been provided
to or in respect of certain persons and where this may not have
occurred but for regulatory failure; or
· where serious damage has been caused to
the values underpinning the PRA's objectives and this might not
have occurred but for regulatory failure.[293]
354. The second trigger would include events
that:
· had or could have had a significant adverse
effect on the safety or soundness of one or more other PRA-authorised
persons, or
· related to a PRA-authorised person and
indicated a significant failure to secure an appropriate degree
of protection for policyholders (in the case of PRA-regulated
insurance contracts).[294]
355. For both the PRA and FCA, the regulators
must assess whether triggers have been met. In addition, the Treasury
can direct the regulators to carry out an investigation if it
considers that the triggers have been met or where it considers
that an investigation is in the public interest.[295]
356. The FSA raised some specific issues relating
to how the requirement to produce regulatory failure reports will
work in practice. Its main concerns centred around two areas:
the objectivity of triggers, and how regulatory failure inquiries
will fit with ongoing enforcement action.
357. The FSA thought that it was inappropriate
for the regulators themselves to decide if triggers for a report
on their own failure had been met. It also was unsure how the
FCA triggers relating to its efficiency and choice objective and
to impacts on competition would work in practice, particularly
as they could be used by firms to challenge product intervention
powers. The FSA also asserted that there is a lack of clarity
about the thresholds for triggering the reports. It suggested
some objective triggers, such as a particular level of redress
paid as a result of mis-selling or a certain scale of levy made
by the Financial Services Compensation Scheme.[296]
358. There are some advantages to have an
objective set of triggers for regulatory failure inquiries, to
ensure clarity and increase accountability. However, these would
be very difficult to define. It is important to note that even
if the FCA or PRA does not think the threshold for an inquiry
has been met, the Treasury will, under the proposals, be able
to direct the regulators to undertake an inquiry. Given this,
we do not think that the Bill needs to contain more specific objective
triggers.
359. Early reports on regulatory failure would
have benefits in terms of understanding why failures occurred
and taking steps to reduce the probability of such events in the
future. However, there could be conflicts with the need to avoid
prejudicing potential enforcement action against firms and individuals.
If the regulatory failure took place in respect of an investigation
of a particular action of a particular firm, and that investigation
is ongoing when the report on regulatory failure is ready, then
publishing the report could pre-empt the related enforcement action.
In addition, dealing with both a regulatory report and enforcement
action at the same time could have operational implications, with
a risk of inconsistency and duplication if separate teams were
used. The FSA said that in light of its previous experience, including
preparing the report on the failure of RBS, pursuing enforcement
action and producing a report at the same time "would involve
considerable difficulties from both a legal and operational standpoint".[297]
The FSA added that the RBS report had involved a "very lengthy
and difficult debate" and a long discussion about the use
of the FSA's powers to collect information and what usage that
information could be used for.[298]
The FSA has suggested that clear political guidance is needed
on how to balance reports on regulatory failure and enforcement
action.
360. There is some flexibility in the draft Bill
as to how an investigation on regulatory failure should be conducted.
Specifically, Clause 55 states that it is for the regulator to
decide how to carry out an investigation, subject to certain provisions:
"55 Conduct of investigation
(1) Where a regulator is required by section
51 or 52 or under section 54 to carry out an investigation, it
is for the regulator to decide how it is to be carried out, but
this is subject to the following provisions.
(2) The Treasury may, by a direction to the regulator,
control
a) the scope of the investigation;
b) the period during which the investigation
is to be carried out;
c) the conduct of the investigation;
d) the making of reports.
(3) A direction may, in particular
a) confine the investigation to particular matters;
b) extend the investigation to additional matters;
c) require the regulator to postpone the start
of an investigation until a specified time or until a further
direction;
d) require the regulator to discontinue the investigation
or to take only such steps as are specified in the direction;
e) require the regulator to make such interim
reports as are so specified." [299]
361. Under the draft Bill, the Treasury can therefore
direct the regulator as to the timing of the investigation, as
well as other matters. However, at the moment, neither the Treasury
nor the regulator is explicitly required to consider the impact
of regulatory failure investigations on other regulatory activity,
including enforcement action.
362. The Treasury should be required to consider
impacts on other regulatory activity, including enforcement activity,
when making directors to the regulator on the conduct of investigations
into regulatory failure. We also recommend that the regulator
should be required to consider the impacts on other regulatory
activity, including enforcement activity, when deciding how to
conduct a regulatory failure investigation.
241 House of Commons Treasury Committee, 21st Report
(2010-12) Accountability of the Bank of England (HC 874). Back
242
HM Treasury, A new approach to financial regulation: building
a stronger system, February 2011, para 2.75. Back
243
House of Commons Treasury Committee, 21st Report (2010-12) Accountability
of the Bank of England (HC 874), para 119 Back
244
British Bankers' Association written evidence Back
245
Treasury Select Committee, Correspondence between Treasury Committee
and Court of the Bank of England, 31 October 2011 Back
246
Clause 3 (new Bank of England Act 1998 clause 9B) and HM Treasury,
A new approach to financial regulation: building a stronger
system, February 2011, para 2.76-2.80 Back
247
House of Commons Treasury Committee, 21st Report (2010-12) Accountability
of the Bank of England (HC 874), para 101-104 Back
248
HM Treasury, A new approach to financial regulation: the blueprint
for reform, par 2.19, June 2011 Back
249
Legal & General written evidence Back
250
Q 559 Back
251
Q 262 Back
252
House of Commons Treasury Committee, 21st Report (2010-12) Accountability
of the Bank of England (HC 874), para 91 Back
253
Oral evidence taken before the Treasury Select Committee on 1
November 2011, Q 116 (HC 1574-ii-inquiry into the Financial Conduct
Authority) Back
254
Which? written evidence Back
255
Which? written evidence Back
256
Q 1074 Back
257
Clause 5 (new FSMA clauses 1H, 1I, 1J, 1L and 1M) Back
258
Clause 5 (new FSMA clause 2J) Back
259
E.g Deloitte written evidence, Financial Services Practitioner
Panel written evidence, AgeUK written evidence. Back
260
Deloitte written evidence Back
261
Financial Services Practitioner Panel written evidence. Back
262
Bank of England written evidence Back
263
Q 782 Back
264
Q 781 Back
265
Q 782 Back
266
Q 948 Back
267
HM Treasury, A new approach to financial regulation: the blueprint
for reform, June 2011, Cm 8308, para 2.78 Back
268
Q 949 Back
269
Q 458 Back
270
Q 448 Back
271
Schedule 3 (new FSMA Schedule 1ZB) Back
272
HM Treasury, A new approach to financial regulation: the blueprint
for reform, June 2011, Cm 8308, para 2.69 Back
273
Financial Services and Markets Act 2000, Schedule 1, paragraph
7. Back
274
Schedule 3, Part 1 (new FSMA Schedule 1ZA and new FSMA Schedule
1ZB) Back
275
Schedule 3, Part 1 (new FSMA Schedule 1ZB) Back
276
HM Treasury, A new approach to financial regulation: the blueprint
for reform, June 2011, Cm 8308, para 2.71 Back
277
Office of the Complaints Commissioner written evidence. Back
278
Q 460 Back
279
Office of the Complaints Commissioner written evidence. Back
280
Investment Management Association written evidence Back
281
Q 460 Back
282
Q 452 Back
283
Q 450 Back
284
Financial Services and Markets Act section 417(1) Back
285
Specifically, those set out in FSMA section 393(11) regarding
the right of a third party to appeal to tribunal if he alleges
that a copy of a regulator's decision notice ought to have been
made available to him, but was not. Back
286
Explanatory notes to the draft Bill, paragraph 218. Back
287
Clause 20 (new FSMA clauses (6) and (6A) Back
288
British Banking Association written evidence. Back
289
HM Treasury, A new approach to financial regulation: the blueprint
for reform, June 2011, Cm 8308, para 2.66 Back
290
Q 953 Back
291
HM Treasury, A new approach to financial regulation: the blueprint
for reform, June 2011, Cm 8308, para 2.131 Back
292
Clause 51 Back
293
HM Treasury, A new approach to financial regulation: the blueprint
for reform, June 2011, Cm 8308, para 2.73 Back
294
Clause 52 Back
295
Clauses 51, 52 and 54 Back
296
FSA supplementary written evidence Back
297
FSA written evidence Back
298
Q 995 Back
299
Clause 55 Back
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