In the headlines today there are number of articles reporting the need for the Bank of England to be subject to greater accountability to Parliament. The week before last, the other financial services regulators were subject similar suggestions about accountability to Parliament. So what is this all about?
Brexit provided a springboard to move the responsibility for significant amounts of financial services regulation from the EU to the UK. As a result, UK financial services regulation is currently in a phase of momentous overhaul. As part of this overhaul, the regulators gain new objectives, revised principles of regulation, and an array of new statutory powers. With these new powers comes a system of new checks and balances, and a re-balancing of the regulatory framework, broadly designed to ensure that the regulators are accountable and subject to appropriate levels of scrutiny and oversight.
There are provisions that require the regulators to keep their rules under review and to publish policies about how these reviews are conducted. There are provisions that require the regulators to consult with Treasury and provisions that enable Treasury to direct that certain rules are reviewed and others made in relation to areas of critical focus. The regulators must engage with Treasury and justify the reasoning behind the actions that they take. There are also provisions for consultation, before any rules are made, by the regulators with the statutory panels (which have a crucial role in enabling the regulated community with a voice), and enhanced annual reporting requirements.
The financial services regulators are independent public bodies accountable to both Houses, therefore not just to Treasury, but also to Parliament. Accordingly, there are also revised provisions around the consultation processes with Parliament which are broadly designed to ensure that parliamentarians receive the level of information that they need from the regulators in order to provide effective parliamentary scrutiny. It is in this context that the Liaison Committee of the House of Lords has announced, given the importance of the financial services sector to the UK economy as a whole, the need for a new committee to consider the regulation of financial services generally.
This new freestanding committee is intended to provide a dedicated and specialised resource to focus on the bigger picture of financial services regulation, including scanning the horizon for forthcoming consultations, scrutinising regulation retrospectively, engaging with and scrutinising the regulators, and carrying out thematic policy based activities.
The financial services industry is enormously significant to the functioning of the UK economy. On this basis, revised and enhanced consultation processes are vital to ensuring the holistic consideration of the impact of changes to rules and practices in the UK's financial services regulatory environment, and ensuring the provision of robust stakeholder input into the development of financial services regulation and related policy. The new measures should ensure that the UK's financial services markets continue to function effectively, are internationally competitive, and that they continue to enjoy sustainable growth.
There is a need for a committee with sufficient resource to scrutinise financial services regulatory consultations, and financial services regulation generally. We therefore recommend the establishment of a new, freestanding sessional committee to scrutinise consultations under the Financial Services and Markets Act 2023. We also recommend that the new committee’s remit should extend to considering the regulation of financial services generally.