Financial Conduct Authority  

FCA told to support govt's energy investment strategy

FCA told to support govt's energy investment strategy
 

The Financial Conduct Authority should ‘have regard’ when it comes to supporting the government’s energy security strategy, according to a letter to the regulator from HM Treasury.

The letter, addressed to Nikhil Rathi, chief executive of the FCA, made recommendations to the regulator about aspects of the economic policy of the government, which it said the FCA should consider.

Chancellor Rishi Sunak, who wrote the letter, said it should be read in conjunction with his letter last year on March 23, 2021.

He explained that the recommendations in the letter are intended to supplement rather than replace the recommendations made in the 2021 letter. 

Sunak wrote: “The prime minister recently set out the government’s energy security strategy. Oil and gas currently provide three quarters of our energy, and around half of our demand for gas is met through domestic supplies. 

“To reduce our reliance on imported fossil fuels, UK sources of oil and gas have a critical role, both to keep our economy supplied and in supporting the transition to net zero.”

He said the government is taking a “balanced approach” and is committed to increased investment in low and zero carbon technologies, while supporting the UK hydrocarbon industry. 

“Where practical and relevant, the FCA should have regard to the government’s energy security strategy and the important role that the financial system will play in supporting the UK’s energy security - including through investment in transitional hydrocarbons like gas - as part of the UK’s pathway to net zero.”

Sunak also said the regulator should look at how to act in a way which is compatible with its strategic objective; how to advance one or more of its operational objectives and how to discharge its duty to promote effective competition in the interests of consumers.

It should also consider the importance of taking action to minimise the extent to which it is possible for a business to be used for a purpose connected with financial crime.

Referencing last year’s letter, Sunak said he set out a recommendation that the FCA should have regard to the government’s commitment to achieve a net-zero economy by 2050 when considering how to advance its objectives and discharge its functions. 

He concluded: “I welcome the work that the FCA has done to date on this issue, including the TCFD rules and development of Sustainability Disclosure Requirements.”

In his Spring Statement last month, Sunak scrapped the 5 per cent VAT on green home improvements such as heat pumps and solar panels.

He said the government will reverse a ruling by the Court of Justice of the European Union which he said has previously restricted the application of VAT relief on the installation of Environmental and Social Management Systems (ESMs).

A “time-limited” zero rate for the installation of ESMs will be introduced in its place, taking effect from April 2022.

sonia.rach@ft.com