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The UK government has ditched plans to have a veto over financial regulators’ decisions, following backlash from lawmakers and regulatory officials.
The government has u-turned on a controversial amendment that would have allowed it to override regulators such as the Financial Conduct Authority (FCA) and the Bank of England.
The power was touted by Rishi Sunak during the final weeks of his time as Chancellor of the Exchequer and had continued to be championed by the government following his departure and the brief tenure of Liz Truss. Now, however, it has been abandoned.
"The government has decided not to proceed with the intervention power at this time,” Andrew Griffith, the economic secretary to the Treasury, said in a statement.
Having consulted further, HM Treasury is now of the view that the existing provisions in the bill are currently sufficient, allowing the government “to seize the opportunities of Brexit by tailoring financial services regulation to UK markets to bolster our competitiveness".
"We have always been keen to find the right balance between increased responsibility for the regulators, with clear accountability, appropriate democratic input, and transparent oversight,” the statement said. "We remain committed to the operational independence of the financial services regulators."
The Treasury’s climbdown comes after an autumn of criticism.
Financial regulators had been far from enthusiastic about the "call in" power. For example, FCA interim chair Richard Lloyd said that it could be damaging for the UK’s international stature.
While providing evidence to the Treasury Select Committee, Lloyd said that there is “clearly economic and market volatility where it would be unwise to create a perception that rules would be made by future ministers potentially overriding the evidence-based decision-making of the FCA board”.
The UK’s international reputation and competitiveness in financial services internationally is in part built on the perception and reality of the independence of the regulators, said Lloyd, who had previously worked at consumers’ association Which?.
“Even if it’s used very sparingly … the perception that comes with the ability of ministers to direct independent regulators clearly would go to undermining our independence,” he stressed.
Sam Woods, head of the Prudential Regulation Authority, had also apparently questioned the strengths of the amendment while delivering a speech last month at Mansion House.
“Leaving aside the evidence on financial stability, some might think that such a power would boost competitiveness. My view is that through time it would do precisely the opposite,” he cautioned.
The "call in" power could have undermined international credibility and create a system in which financial regulation blew much more with the political wind — weaker regulation under some governments, harsher regulation under others.
“These are not features which would make the UK a more attractive place for international firms to do business in,” he warned.
Beyond this amendment, the Financial Services and Markets Bill had otherwise garnered cross-party support on matters such as fintech innovation and access to cash.
