The FCA has rejected calls from MPs on the influential Treasury Committee to make financial inclusion a key part of regulation.
The Treasury Committee said that following its report on the Future of Financial Services regulation the FCA had supported many of its calls but not financial inclusion.
The FCA argued that ‘having regard’ to financial inclusion when making rules would not to increase its ability to meet its objectives.
However, the FCA has agreed with the committee on the importance of maintaining regulatory independence.
The Treasury Committee questions and monitors UK regulators but has no direct control over them. It does, however, provide feedback to the Treasury which is responsible for UK financial regulation.
Earlier this year the Treasury Committee questioned key figures in the Government, the Prudential Regulation Authority and the Financial Conduct Authority for its report on the Future of Financial Services Regulation published in June. The Treasury Committee today published responses from the bodies to its recommendations.
The report proposed that competitiveness should not become a primary objective for financial regulators and warned against any “inappropriate weakening” of the UK’s strong regulatory standards, reaffirming its commitment to regulatory independence.
MPs on the Committee supported calls for regulators to be given a secondary objective to promote long-term economic growth, and recommended that the FCA should take into account financial inclusion when making rules. However the FCA has rejected including financial inclusion in decision making.
Today MPs in the Commons are due to debate the new Financial Services and Markets Bill and the Treasury has said it has noted each of the Committee’s recommendations.
In its response, the PRA agreed that independence of the Bank of England was needed to maintain the effectiveness of financial regulation. The regulator also supported the Committee’s assessment that pursuing international competitiveness in the short term by lowering the UK’s strong standards would not result in sustainable economic growth.
The Committee said the FCA supported its position on regulatory independence but disagreed with the recommendation that the regulator should ‘have regard’ to financial inclusion.
Mel Stride MP, chair of the Treasury Committee, said: “Following the UK’s withdrawal from the EU, regulators have taken on new and greater powers. Underpinning our financial services industry is the principle of regulatory independence, as well as the operational independence of the Bank of England. The Committee will remain alert to ensure that regulators are not leant on to inappropriately water down regulations to the detriment of the safety and soundness of our financial services system.”
The report’s conclusions and recommendations included:
- The Treasury should respect the principle of regulatory independence, and must not pressure the regulators to weaken or water down regulatory standards
- There should be a secondary objective for the FCA and the PRA to promote long-term economic growth
- The Treasury should continue to reject any calls for a growth and/or competitiveness objective to become a primary objective
- The Treasury should require the FCA to have regard for financial inclusion in its rule-making
- Regulatory independence is critical for the competitiveness and effectiveness of UK financial services regulation. The host of new accountability mechanisms proposed by the Treasury must be carefully reviewed in this light, to ensure that regulatory independence is not compromised
- The FCA should consider how to improve its engagement with the poorest consumers, and must seek data on the issues vulnerable consumers experience directly.
