The Industry and Regulators Committee has raised 'significant concerns' over the role of UK regulators, their ability to operate with independence from government, and how they are held to account.
In its report, ‘Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators’, the committee concluded that a fresh approach to overseeing UK regulation is required, calling for the creation of an ‘Office for Regulatory Performance’ to investigate and report on regulators’ performance.
In October 2023, the committee opened the inquiry looking into the relationship between regulators and the government and encouraged individuals and organisations - including the Financial Conduct Authority - to submit evidence.
The committee found that:
- Some regulators are being overloaded with objectives, without clear guidance on how they should prioritise between them;
- While some regulators can raise their own revenues through levies and charges, others depend on the Government for their funding, which inevitably influences their ability to carry out their functions independently;
- It is crucial that regulators are held to account for how they use their powers by Parliament, but currently parliamentary scrutiny of regulators is “reactive and piecemeal rather than systematic and routine”.
Charles Randell, former chairperson at the FCA, emphasised the importance of independent regulation and said it generally provided “more transparent, evidence-based and predictable decision-making than a politically dominated system”.
In its submission, the FCA expressed confidence that the UK’s regulators are sufficiently independent and said its operational independence is “internationally respected”.
Randell also highlighted the big difference between the regulators that have taxing powers and those that do not.
He explained the major financial regulators - like the FCA - are able to levy the industry for their costs which gave them “a measure of autonomy” in raising their budgets.
Based on the evidence it received, the committee has called on the government to:
- Allow parliament to play a more prominent role in scrutinising appointments to regulators, and provide a public explanation if it chooses to make an appointment that has not been endorsed by the relevant select committee;
- Ensure the consumer view is properly heard by regulators, by expanding statutory provisions for independent consumer advocacy;
- Provide parliament with the resources necessary to establish a new body, the Office for Regulatory Performance, to support its scrutiny of regulators.
The FCA said it was “vital” that it is held to account while Randell said parliamentary scrutiny had made an “overwhelmingly positive contribution” to the work of the FCA during his time as chairperson.
However, in regard to setting up a new body to scrutinise regulators, Randell, said: “I’m not convinced that balancing another turtle on the back of the enormous pile of turtles of accountability that the FCA already has would improve its performance.”
Lord Hollick, chairperson of the inquiry said: “If the integrity and legitimacy of the UK’s regulatory system is to be preserved, the findings and recommendations in our report must be addressed by the Government, regulators and Parliament.”
A spokesperson for the FCA told FT Adviser: "We thank the committee for its considered contribution and we will review the inquiry’s findings in depth. We believe accountability is vital, and have hugely benefitted from the regular and close scrutiny of Parliamentary committees on our work."
alina.khan@ft.com
