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The UK government and the Financial Conduct Authority (FCA) have taken the opposite view to the Treasury Select Committee on whether the latter should legally "have regard" for financial inclusion matters.
The UK’s banking watchdog, as well as Her Majesty’s Treasury, have gone against the influential committee of lawmakers, stating that they think the regulator’s current responsibilities for financial inclusion are adequate.
This follows a recommendation in the Treasury Select Committee’s Future of Financial Services Regulation report that said the FCA should "have regard" for the financial inclusion of consumers.
To "have regard" legally speaking is to take account and genuinely consider an issue.
“We recommend that the Treasury should require the FCA to have regard for financial inclusion in its rule-making, but not to make changes relating to financial inclusion to the FCA’s objectives,” the cross-party group of members of parliament (MPs) said, suggesting that the FCA should be placed under a statutory requirement to account for financial inclusion.
However, in its response to the committee’s report, the FCA said that such a requirement would not “add to our existing ability to act within our remit in line with our objectives; and it might risk increasing expectations that the FCA should step in to fix problems that it does not have the power to solve, perhaps contributing to further confusion rather than addressing the root causes of exclusion.”
The Treasury Select Committee, which operates on a bi-partisan basis, made the FCA’s response public alongside other responses to its report, which was first published in June.
The FCA’s response pointed out that currently, it does not have any levers to make firms offer services to consumers, pointing out that these decisions to set public service obligations sit with parliament and government.
The regulator also cannot change underlying factors that might mean that consumers are considered higher risk by firms. “We have not yet seen any convincing arguments that a have regard would strengthen the power we have to investigate and solve exclusionary practices on the part of firms.”
In addition, it is sometimes necessary to intervene in ways which restrict access to financial products where there is risk of consumer harm, the FCA said. “Affordability and appropriate pricing for risk are important tenets of the provision of financial service.”
The FCA’s stance was echoed by the Treasury, albeit in a response issued under the leadership of the previous chancellor, Nadhim Zahawi.
“The Government’s position remains that the FCA’s existing objectives and regulatory principles are well-aligned with financial inclusion objectives and that a separate ‘have regards’ to financial inclusion would not lead to tangible improvements over the current arrangements,” said Richard Fuller, economic secretary to the Treasury.
Fuller added that many financial inclusion issues, including those highlighted by the committee, are complex and require several organisations to work together to come to a solution.
“There are numerous examples where this has been done successfully through close collaboration between the Government, regulators, industry and the third sector.”
The FCA is sympathetic to the “powerful case made by witnesses to the Committee that this is an issue which appears to fall between various authorities.”
In its response to the report, the regulator said that this is because the causes of exclusion are complex, multifaceted and do not sit neatly in one sector. “We think any more detailed analysis of inclusion — especially one seeking to make recommendations across organisations — would need to look beyond the firm and product level data available to the FCA, looking at factors like entitlement to Government support, credit scores, financial literacy and other elements which affect consumers’ financial circumstances.”
