A new review has proposed reforms to strengthen Parliament’s oversight of the City regulator, to ensure transparency in Financial Conduct Authority (FCA) processes and diversity in their appointments.
The Treasury’s Future Regulatory Framework (FRF) Review, which was established to consider how the financial services regulatory framework should adapt for the future post-Brexit, said the government has proposed formalising through statute the mechanisms through which the FCA and Prudential Regulation Authority (PRA) provide information to Parliament. The review said this is to ensure they have the information they need to undertake that scrutiny.
The government also wants to strengthen the engagement mechanisms that exist between Treasury and the regulators.
The review said this would be achieved through a new requirement for the PRA and FCA to respond to the Treasury’s recommendations and a new power for the Treasury to require the regulators to review their existing rules where the government considers that it is in the public interest.
The review said strengthening Parliament’s oversight of the PRA and FCA, and the relationship between Treasury and the regulators, will “ensure there continues to be appropriate democratic input into, and public oversight of, the regulators’ activities”.
The government has proposed that regulators should be required to publish a statement on their approach to the recruitment of panel members, to ensure that their membership represents a truly diverse range of stakeholder views.
The government is also introducing proposals to support greater transparency of the regulators’ processes, and to strengthen their approach to cost-benefit analysis (CBA), an important part of the regulators’ policymaking process.
The government has recommended the creation of a new statutory panel designed to review, and make proposals on, the regulators’ production of CBA in order to improve the processes.
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The review said the focus on greater transparency will also be delivered through new requirements for the regulators to publish and maintain public frameworks that set out their approach to reviewing their rules and conducting CBA.
The government also said that the regulators’ statutory panels, which is an important part of the process through which stakeholders can feed in views on proposals, will be able to provide earlier input into the regulatory policymaking process now that the UK is responsible for all regulatory policymaking outside the EU.
“The Treasury’s reform proposals confirm the three pillars of the government’s approach,” said Simon Morris, a financial services partner with law firm CMS.
“Maintaining world-class regulatory standards, tailoring regulation to reflect the UK market and its customers, and delegating the day-to-day rule-making to the regulators.
“This all makes sense, especially since a pair of UK regulators close to the market can adapt quicker to changing market conditions than the cumbersome and compromise-beset EU behemoths. Baking climate change and competition into the regulators’ objectives demonstrates the continuing politicisation of financial regulation.”