There is little point in changing regulation if such initiatives are not matched by regulator behaviours. Financial services regulators must use their powers proportionately to ensure that they have a positive impact on economic growth in the UK economy (and, where permitted by their terms of reference, that applies to other regulators too). Therefore, the industry warmly welcomes the provision in the Financial Services and Markets Bill to create a new international competitiveness and economic growth secondary objective for regulators. It is positive that this has received cross party support.
We hope that Parliament will go further as the Bill progresses and ensure that the regulators are required to take full account of the broad, significant social and economic impacts that their actions can have. Specifically, the Bill should be amended to include a mechanism to mandate additional oversight of regulators’ implementation of their new objective and, in particular, how they will balance it with their existing objectives.
The culture, approach and efficiency of regulators in implementing regulation and supervising compliance impacts the UK’s competitiveness. UK regulators are generally well respected and trusted globally. But can sometimes be slow and bureaucratic (for example, on their approach to the Senior Manager Regime, and on processing applications for authorisations) and not as open to engagement and listening as they should be. This undermines their effectiveness and reputation and, ultimately, UK competitiveness. The regulators need to adopt a more commercial mindset and give due consideration to the commercial impacts of their asks and actions. There should also be a more joined up approach between the regulators – for example, on information requests. Regulators should be held to account on improving their operational efficiency and effectiveness. But they should also be encouraged and supported by government in achieving the culture necessary to embed these changes.
Regulators’ operational independence is a key factor underpinning the UK’s competitiveness in financial services. It is important, therefore, that UK and international market participants continue to have confidence in the day-to-day operational independence of the UK regulators.
We understand that the government plans to propose a new intervention power for inclusion in the Financial Services and Markets Bill. We are keen to work with government to ensure that this power is created in a way that meets the principles we have outlined above. This power should be crafted with care as part of a package of accountability mechanisms in the Bill. It should be tightly defined and used as a last resort, only when regulators have not sufficiently addressed concerns (raised by the industry, the public, government or Parliament) that regulation is not fit for purpose, or has social or economic consequences that have not been envisaged or considered.
Recommendations:
a) The Financial Services and Markets Bill should be amended to include a power to require regulators to transparently report metrics on specific aspects of their operational efficiency, and implementation of the new secondary objective.
b) If the government creates an intervention power, it should be consistent with the principles set out above and set out clearly how and when it will be used.
c) The government should work with regulators and industry to identify key areas of regulators’ operational approach and inefficiencies that need to be addressed to reduce compliance costs and regulatory delays; and to develop proportionate solutions.