In a new report on the Future of Financial Services Regulation, the committee outlined that all regulators should have a secondary objective to promote long-term economic growth.
This objective should reflect the ways in which financial services facilitate economic growth by providing capital, credit and insurance to firms outside of the financial services sector.
It explained that while regulators should not be carrying out social policy, or filling the gaps where the government ought to be stepping in, the committee recommends that the FCA should have regard for financial inclusion in its rule-making.
The FCA should also consider how to improve its engagement with the poorest consumers, and seek data on the issues vulnerable consumers experience directly, it said.
An FCA spokesperson said: “We will read this report with interest and carefully consider its recommendations.”
“The FCA has a global reputation for supporting innovation in the interests of consumers. Our approach allows firms of all sizes to safely test new products and services and help innovative companies through the authorisation process.”
FTAdviser understands the regulator will work with HM Treasury on the recommendations.
The committee also recommended that the PRA consider what more can be done to level the playing field between smaller banks and insurers, and larger firms which model their own capital requirements as this could strengthen competition.
Within the report, the committee said it encourages the FCA to investigate whether there are opportunities for larger firms to be more experimental with innovative products, for example by setting aside additional capital to compensate consumers if new products turn out not to benefit consumers as anticipated.
“While this would not be without risks, it is an example of the bold approach which the FCA should be prepared to consider,” it said.
Treasury committee chair Mel Stride said the financial services sector was at a “turning point”, with regulators taking on new powers following the UK’s exit from the EU.
“While it is vital that regulators are not leant on to inappropriately water down regulations, and the committee will remain vigilant in this area, there are likely to be real opportunities to lessen regulatory burdens without weakening standards,” he said.
“It is also important that the regulators have an objective to promote growth, not just for the financial services sector, but for the wider economy.”
The direction of financial services regulation
In the report, the Treasury Committee said Brexit should not in itself be the cause of instant or dramatic changes to financial services regulation in the UK.
It said there would be opportunities to tailor inherited EU regulations to the UK market, and to look for opportunities for simplification.
“The Treasury should respect the principle of regulatory independence, and must not pressure the regulators to weaken or water down regulatory standards, or to accept changes to the regulatory framework which could impede the regulators' ability to achieve their primary objectives,” it said.
The committee urged that it would remain alert for any evidence that regulators are coming under undue pressure from the Treasury to inappropriately weaken regulatory standards.
A Treasury spokesperson said: "We welcome the committee’s report, which supports many proposals that came out of our Future Regulatory Framework Review.
"These reforms provide a once-in-a-generation opportunity to ensure that the UK maintains a coherent, agile, and internationally respected approach to financial services regulation after leaving the European Union. We will legislate shortly to bring them into force."
Meanwhile, although the committee argued there should be a secondary objective, it said the wording will be crucial.
“Pursuing international competitiveness in the short term is unlikely to lead to economic growth or international competitiveness in the long term if it is achieved by weakening the UK's strong regulatory standards”, it said.
“Weakening standards could reduce the financial resilience of the UK's financial system and undermine international confidence in that system and the firms within it. “
In designing the new secondary objective, the committee said there should also be some consideration for the ways in which financial services serve the economy.
“The Treasury should continue to reject any calls for a growth and/or competitiveness objective to become a primary objective. This would increase any pressure on regulators to trade off competitiveness against resilience, and would undermine the regulators' ability to deliver on their core functions.
“There is a danger that as memories of the financial crisis fade, its lessons are forgotten."
sonia.rach@ft.com
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