Financial Conduct Authority  

FCA wants more transparency in dealings with Treasury

FCA wants more transparency in dealings with Treasury

The chief executive of the Financial Conduct Authority has warned there is not enough transparency in the process it follows to request powers from the government to allow it to act outside of its current regulation. 

In response to the government's decision last week to deny calls to make it easier for the watchdog to crack down on unregulated business, Andrew Bailey said: "[W]e share the committee’s view that there could be a more structured and transparent approach for identifying and engaging with HM Treasury on perimeter changes.

"This could allow for a regular opportunity to consider what activities are covered by regulation, and enhance transparency surrounding changes to the FCA regulatory perimeter."

The FCA's regulatory perimeter determines what the watchdog can and cannot regulate and is established by the Treasury, but the regulator has no formal power to request any changes to the perimeter.

In August the Treasury committee called for such powers, warning the current process was "informal" and created a "grey area" between regulated and un-regulated activities which risked being exploited. 

But the Treasury denied the request, saying it did not deem it necessary to shake up the process.

Last week Catherine McKinnell MP, interim chairwoman of the Treasury committee, said she was disappointed by the government's decision, a sentiment Mr Bailey had agreed with in response. 

MPs on the committee had recommended "clear and explicit" warnings should be provided where regulated financial institutions undertake unregulated activity to avoid a repeat of scandals such as the collapse of London Capital & Finance, which saw the funds of more than 14,000 bondholders put at risk.

The committee's original recommendations had received backing from FCA chairman Charles Randell, who told MPs he was "personally very unhappy […] with the complexity of the perimeter of regulation" and warned "bad people" may exploit the grey area between where a consumer is protected by regulation and is not. 

In a statement yesterday (October 17) Ms McKinnell MP said: "The Treasury committee has recommended that the FCA is given the formal power to suggest changes to the government over what it regulates, which could help the FCA to protect consumers.

"Disappointingly, yet perhaps unsurprisingly, the government rejected our recommendation, opting instead to keep the opaque system as it is.

"The independent FCA, on the other hand, shares our view, rather than the government’s, that a more formal or structured approach would provide greater transparency to the process."

But the government said it already engages "regularly" with financial regulators, including the FCA, at both official and ministerial level to determine whether perimeter need to be changed and therefore did not see the case to grant further powers.

An HM Treasury spokesperson said: "To ensure we get the balance right, we regularly monitor the system and are engaging with the committee’s recommendations on the FCA and the perimeter of regulation.

"By taking this approach, we can continue to attract business and create jobs, while making sure consumers are properly protected."