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A planned amendment to the Financial Services and Markets Bill, which greatly extends the powers of the UK government to direct financial regulators to take action, has been delayed, which the Treasury Select Committee has called "sub-optimal" due to a lack of parliamentary scrutiny it will receive.
The Treasury Committee, a backbench group of UK parliamentarians, has criticised the government’s approach to the scrutiny of major changes to financial regulation.
In a letter sent to the committee’s interim chair, Angela Eagle, the government has confirmed that it will not use the next stage of the legislative process to amend the Financial Services and Markets Bill to introduce its proposed regulatory "call in" power.
The bill was first published in July and is expected to make its way through the UK parliament by the end of the year.
It includes consumer protection rules on issues such as payments fraud, and a commitment to the Financial Conduct Authority and Prudential Regulation Authority on a new secondary objective for medium to long-term growth and international competitiveness.
It will also give the Bank of England a new sustainable growth principle and deliver the legislative side of the government’s Net Zero plans.
However, the "call in" power, which has been trailed by ministers but not shared with parliament or regulators, would enable the Treasury to “direct a regulator to make, amend or revoke rules”, making it easier for the government to overrule decisions by the regulators.
“If it was the government’s intention to acquire such a power it should have included it in the bill at its introduction,” said Eagle. “Given the importance of relationships between government and independent financial institutions — only emphasised by recent events — the Treasury’s approach to parliamentary scrutiny in this case has been decidedly sub-optimal.”
The policy of a "call in" power was talked up by both Rishi Sunak and the former Prime Minister, Liz Truss, during their leadership campaigns in August 2022.
In its letter to the committee, the government signalled its intention to amend the legislation and to introduce this power at a later stage.
Eagle, a Labour MP, took the opportunity to criticise the government’s approach to parliamentary scrutiny in her response.
Eagle also asked for confirmation that the power will be introduced in the House of Commons, where it can be examined by MPs, and whether the government will consult the regulators on the proposed "call in" power.
Her letter also demands adequate time for the committee to take evidence, scrutinise and table amendments to this new component of the legislation.
“The government’s proposed ‘call in’ power is controversial and potentially risky,” Eagle complained. “That’s why we are calling for the government to be open and transparent in its decision-making and to provide timely parliamentary scrutiny in the Commons, in order to avoid any adverse unintended consequences of legislating for this power.”
The committee’s report on the future of financial services regulation, which was published in June, stressed the importance of safeguarding regulatory independence and cautioned it would remain alert to evidence that regulators are coming under undue pressure to inappropriately weaken standards.
While the UK government has been through plenty of change, so has the Treasury Select Committee, having lost its chair, Mel Stride, to the Cabinet level position of work and pensions secretary.
The new Treasury chair is currently in the process of being elected, and looks set to be Harriett Baldwin.
Baldwin served as economic secretary to the Treasury in 2015 and, during this time, helped oversee the implementation of open banking standards through the Open Banking Working Group.
