Treasury committee warns govt on Fos interference with regulation

“It believes that a more efficient use of parliamentary resources would be to use the structures already available in both houses.”

The Treasury’s consultation had stated that the proposed blueprint for the future regulatory framework involved adapting the Financial Services and Markets Act model to create a more coherent and “democratically accountable framework for the development and application of future UK financial services regulation”.

However, the consultation made no reference to the Fos.

Post-Brexit world

In the report, the committee considered the future of financial services following the Brexit transition period and examined how financial regulations should be set and scrutinised by parliament.

The committee agreed with the Treasury the EU financial services rules that were on-shored during the process of leaving the EU should be moved into the regulators' rule books.

Keeping rules in statute could require parliament to amend or pass new legislation every time regulators wished to make changes, which would be “resource intensive and impractical”, it said.

The report explained that the independence of regulators from political interference was one of the key aspects of UK financial services regulation and it did not believe there was compelling evidence for legislating to allow ministers the absolute right to see regulators’ policy proposals before they are published for consultation. 

It said: “We understand the need for Treasury ministers to be well informed of the regulators’ policy intentions as a matter of routine.

"However, we have not been provided with compelling evidence to justify changing the law to allow ministers the absolute right to see financial services regulators’ policy proposals before they are published for consultation, as opposed to the current arrangements whereby significant interaction between ministers and regulators happens informally as a matter of routine. 

“By doing so, the perception of regulatory independence from government could be damaged. Regulators must continue to be free to choose what they share with the Treasury in this respect.”

The committee also said while it acknowledged there may be a role for the government to use ‘activity based’ principles to instruct regulators’ approach to specific business sectors, it recommended the government was “sparing” in this respect. 

It was concerned the creation of too many ‘activity based’ principles would add a further layer of issues to which regulators would have to have regard.

This comes as last month, the economic secretary to the Treasury pledged transparency around the government's dealings with financial services regulators post-Brexit, as he said a rules-based approach was here to stay. 

In a Treasury committee evidence session (May 26) for its inquiry into the future of financial services, John Glen was asked where the industry was headed from a regulatory point of view, and whether the UK would take a common laws approach - as historically has been - or whether it will be like the EU, which is a lot more rules-based.