Treasury Committee reports on Future Regulatory Framework of Financial Services
6 July 2021
- Regulators should not be required to share proposals with HMT before public consultation
- HMT should use ‘activity based’ regulation sparingly
- Committee will use targeted approach to scrutinise rule changes
The Treasury Committee has today published its Report on The Future Framework for Regulation of Financial Services.
In the Report, the Committee considers the future of financial services following the Brexit transition period and examines how financial regulations should be set and scrutinised by Parliament.
Ownership of financial regulation
The Committee agrees with the Treasury that the EU financial services rules that were 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 regulators wished to make changes, which would be resource intensive and impractical.
The independence of regulators from political interference is one of the key aspects of UK financial services regulation.
The Committee does not believe there is compelling evidence for legislating to allow Ministers the absolute right to see regulators’ policy proposals before they are published for consultation. Regulators must be free to choose what they share with the Treasury.
Activity based principles
While the Committee acknowledges there may be a role for the Government to use ‘activity based’ principles to instruct regulators’ approach to specific business sectors, it recommends that the Government is sparing in this respect.
The Committee is also concerned that the creation of too many ‘activity based’ principles would add a further layer of issues to which regulators would have to have regard.
While the Committee supports the Treasury's consultation to create a more coherent financial services regulatory framework, it recommends that the Treasury consider how the decision-making processes of the Financial Ombudsman Service would interact with the future regulatory framework for the FCA.
The Committee believes that effective scrutiny of regulatory proposals can be more targeted. Regulatory proposals are currently put out for consultation, enabling industry stakeholders, civil society groups as well as Parliament to put forward views.
If any matter of public interest were to arise, the Committee would be able to scrutinise it in more detail using the current framework.
The Committee does not see a clear need for the creation of a new committee or independent body to scrutinise financial regulations. It believes that a more efficient use of Parliamentary resources would be to use the structures already available in both Houses.
Commenting on the Report, Rt Hon. Mel Stride MP, Chair of the Treasury Committee, said:
“As the UK forges a new post-Brexit future, the Government’s approach to financial services regulation will be critical. It needs to get the balance right between effective scrutiny and ensuring that the regime is nimble and light touch where possible.
“It is not a good use of Parliamentary time for MPs to be required to amend or pass new legislation every time regulators wish to make changes. Our regulators are well-equipped and should play a key role in designing the rules they enforce.
“Retaining the independence of our financial services regulators from political interference is essential to ensuring the UK remains a world-leading financial centre.”