Recommendations & Conclusions
45 items
1
Conclusion
Fifth Report - The Future Framework for…
We agree with the Treasury that the body of EU financial services rules that was 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 that the regulators …
Government response. Second, I note the Committee’s view that ‘the body of EU financial services law that was on-shored during the process of leaving the EU should be moved into the regulators’ rulebooks.’ As set out in the previous consultation, the government’s …
HM Treasury
2
Conclusion
Fifth Report - The Future Framework for…
The Treasury consultation alluded to certain UK-derived rules that are set out in UK statute, and it suggested that regulators might be constrained as a result. But we found that the regulators did not appear to feel constrained by the existence of any domestic rules being set out in statute. …
Government response. Second, I note the Committee’s view that ‘the body of EU financial services law that was on-shored during the process of leaving the EU should be moved into the regulators’ rulebooks.’ As set out in the previous consultation, the government’s …
HM Treasury
3
Conclusion
Fifth Report - The Future Framework for…
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 …
Government response. The Committee raises concerns that the proposals put forward by the Government, allowing for earlier feedback from the Treasury during the policy formation process, will damage the perception of regulatory independence, even if they do not in practice. We think …
HM Treasury
4
Conclusion
Fifth Report - The Future Framework for…
The Treasury has in the past been able to delay policies in the interests of the wider negotiations that took place during the UK’s departure from the EU. This suggests that there is already sufficient and appropriate Treasury oversight of the regulators’ policy proposals without needing to put such a …
Government response. The Committee raises concerns that the proposals put forward by the Government, allowing for earlier feedback from the Treasury during the policy formation process, will damage the perception of regulatory independence, even if they do not in practice. We think …
HM Treasury
5
Conclusion
Fifth Report - The Future Framework for…
If the Treasury does wish to give itself the formal power to see policy proposals before they are made public, comments or suggested changes to them using this power should be published alongside the public consultation.
Government response. The Committee raises concerns that the proposals put forward by the Government, allowing for earlier feedback from the Treasury during the policy formation process, will damage the perception of regulatory independence, even if they do not in practice. We think …
HM Treasury
6
Conclusion
Fifth Report - The Future Framework for…
It is not clear to what extent the Treasury wishes to implement activity-specific regulation. While the proposal is a key aspect of the Treasury’s future framework consultation, when we asked the Economic Secretary whether the Treasury The Future Framework for Regulation of Financial Services 27 intended to move more towards …
Government response. The government is considering the recommendations made by the Committee, alongside the responses to the Financial Services Future Regulatory Framework Review Consultation, which closed on 19 February 2021. The government will bring forward detailed proposals in a second consultation in …
HM Treasury
7
Recommendation
Fifth Report - The Future Framework for…
If done with a deft approach, there may be a role for activity-based principles or “have regards” to allow the Government to instruct the regulators, at a more micro level, how it wishes them to approach specific types of business sector. The Government can already instruct regulators more broadly on …
Government response. The government is considering the recommendations made by the Committee, alongside the responses to the Financial Services Future Regulatory Framework Review Consultation, which closed on 19 February 2021. The government will bring forward detailed proposals in a second consultation in …
HM Treasury
8
Conclusion
Fifth Report - The Future Framework for…
Regulating a company as a whole rather than by activity carried out should provide greater flexibility to regulators to respond to new activities as they develop, rather than needing new activity-specific principles or frameworks each time a new activity emerges.
Government response. The government is considering the recommendations made by the Committee, alongside the responses to the Financial Services Future Regulatory Framework Review Consultation, which closed on 19 February 2021. The government will bring forward detailed proposals in a second consultation in …
HM Treasury
9
Conclusion
Fifth Report - The Future Framework for…
We will only be able to conclude with more certainty on the merits or risks of activity- based regulation once the Government provides more details on their proposals in its next consultation.
Government response. The government is considering the recommendations made by the Committee, alongside the responses to the Financial Services Future Regulatory Framework Review Consultation, which closed on 19 February 2021. The government will bring forward detailed proposals in a second consultation in …
HM Treasury
10
Conclusion
Fifth Report - The Future Framework for…
Decisions by the Financial Ombudsman Service set precedents and form a critical part of the consumer conduct-focussed element of the regulatory environment for financial services in the UK. Given that the aim of the Treasury’s consultation is to create a more coherent framework for how financial services are regulated, the …
Government response. The Committee’s report outlined concerns that where the Financial Ombudsman is making decisions which go against regulatory principles there should be some right of challenge for those the decision goes against. We and the Ombudsman Service are aware of the …
HM Treasury
11
Conclusion
Fifth Report - The Future Framework for…
If Parliament itself is to play a role in the setting the regulatory principles of the FCA, it needs to be satisfied that the principles which it has set the FCA are not being undermined by decisions by the Financial Ombudsman Service. (Paragraph 57) Future scrutiny of financial services
Government response. The Committee’s report outlined concerns that where the Financial Ombudsman is making decisions which go against regulatory principles there should be some right of challenge for those the decision goes against. We and the Ombudsman Service are aware of the …
HM Treasury
12
Conclusion
Fifth Report - The Future Framework for…
We believe that a measure of “ex-ante” scrutiny by Parliament is necessary. But we do not believe that it would be proportionate for Parliament or its committees to carry out, as a necessary part of the rule-making process, the detailed and comprehensive textual scrutiny which the European Parliament’s Economic and …
Government response. Third, I welcome the Committee’s recommendation that a ‘targeted approach’ to scrutiny by Select Committees is the appropriate model for Parliamentary scrutiny of regulator activity, whereby the Committee should scrutinise the activities of the regulators in more detail where it …
HM Treasury
13
Conclusion
Fifth Report - The Future Framework for…
We believe that effective scrutiny of regulatory proposals should be carried out through a targeted approach. Each new proposal made by the Financial Conduct Authority or by the Prudential Regulatory Authority under the future financial services regulatory framework would be put out for consultation. Industry stakeholders and civil society groups …
Government response. Third, I welcome the Committee’s recommendation that a ‘targeted approach’ to scrutiny by Select Committees is the appropriate model for Parliamentary scrutiny of regulator activity, whereby the Committee should scrutinise the activities of the regulators in more detail where it …
HM Treasury
14
Conclusion
Fifth Report - The Future Framework for…
We have set out above reasons why we do not believe that Parliament or its committees need necessarily carry out detailed and comprehensive textual scrutiny for every new draft regulation or rule, although it would always be open to a committee of either House to do so. We envisage that …
Government response. Third, I welcome the Committee’s recommendation that a ‘targeted approach’ to scrutiny by Select Committees is the appropriate model for Parliamentary scrutiny of regulator activity, whereby the Committee should scrutinise the activities of the regulators in more detail where it …
HM Treasury
15
Conclusion
Fifth Report - The Future Framework for…
We do not see a clear need for the creation of a new committee or a new independent body to carry out this work. It would seem a more efficient use of Parliamentary resources to use the structures that are already available in both Houses. Although the scrutiny task will …
Government response. Finally, while I note the Committee’s conclusion that they do not see a clear need for the creation of a new committee or a new independent body, I would also like to reiterate that it is rightly a matter for …
HM Treasury
16
Conclusion
Fifth Report - The Future Framework for…
The creation of a new independent body to assess whether regulators were fulfilling their statutory objectives would not remove the responsibility of this Committee to hold the regulators to account, and it would also add a further body to the financial services regulatory regime which we would need to scrutinise.
Government response. Finally, while I note the Committee’s conclusion that they do not see a clear need for the creation of a new committee or a new independent body, I would also like to reiterate that it is rightly a matter for …
HM Treasury
17
Conclusion
Fifth Report - The Future Framework for…
Our Committee has been consistent in its regular monitoring of the work of the Financial Conduct Authority and of the Prudential Regulatory Authority, the extent to which they meet the objectives set for them by Parliament, and their responsiveness to consumer expectations. There is a strong logic in aligning the …
Government response. Finally, while I note the Committee’s conclusion that they do not see a clear need for the creation of a new committee or a new independent body, I would also like to reiterate that it is rightly a matter for …
HM Treasury
18
Conclusion
Fifth Report - The Future Framework for…
The House could, if it thought it necessary to increase the capacity and broaden the expertise of the Treasury Committee in order to undertake scrutiny of financial services, expand the facility under Standing Order No 137A(1)(e) for non-members of the Committee to take part in certain proceedings. This provision currently …
Government response. Finally, while I note the Committee’s conclusion that they do not see a clear need for the creation of a new committee or a new independent body, I would also like to reiterate that it is rightly a matter for …
HM Treasury
19
Conclusion
Fifth Report - The Future Framework for…
The House might also consider increasing the resources available to the Committee if it were, as we anticipate, to expand its existing responsibility for the scrutiny The Future Framework for Regulation of Financial Services 29 of financial services. Although the Committee already has the power to appoint specialist advisers, there …
Government response. Finally, while I note the Committee’s conclusion that they do not see a clear need for the creation of a new committee or a new independent body, I would also like to reiterate that it is rightly a matter for …
HM Treasury
20
Conclusion
Fifth Report - The Future Framework for…
We will continue to maintain an open mind as to how best to scrutinise the significant flow of financial services proposals that will be made by the regulators, and we look forward to engaging constructively with the Government and with others in Parliament once more detailed proposals emerge from the …
Government response. The government is considering the recommendations made by the Committee, alongside the responses to the Financial Services Future Regulatory Framework Review Consultation, which closed on 19 February 2021. The government will bring forward detailed proposals in a second consultation in …
HM Treasury
1
Conclusion
First Report - Future of financial serv…
The EU has reasons to be very prescriptive when setting its financial services rules: it must ensure that all member states are acting together and implementing the same rules consistently across multiple national legal systems. The UK, now that it is outside the EU Single Market, can operate with greater …
Government response. The government notes this recommendation. Regulatory independence has been at the heart of the UK’s domestic model of financial services regulation for over two decades, as set out in Financial Services and Markets Act 2000 (FSMA), and this remains central …
HM Treasury
2
Conclusion
First Report - Future of financial serv…
Given that the UK has historically exercised significant influence in the framing of EU regulations, the UK’s exit from the European Union should not in itself be the cause of instant or dramatic changes to financial services regulation in the UK. Nevertheless, there will be opportunities to tailor inherited EU …
Government response. The government notes this recommendation. Regulatory independence has been at the heart of the UK’s domestic model of financial services regulation for over two decades, as set out in Financial Services and Markets Act 2000 (FSMA), and this remains central …
HM Treasury
3
Conclusion
First Report - Future of financial serv…
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. The regulators have been made operationally independent for a …
Government response. The government notes this recommendation. Regulatory independence has been at the heart of the UK’s domestic model of financial services regulation for over two decades, as set out in Financial Services and Markets Act 2000 (FSMA), and this remains central …
HM Treasury
4
Conclusion
First Report - Future of financial serv…
We will remain alert for any evidence that regulators are coming under undue pressure from the Treasury to inappropriately weaken regulatory standards.
Government response. The government notes this recommendation. Regulatory independence has been at the heart of the UK’s domestic model of financial services regulation for over two decades, as set out in Financial Services and Markets Act 2000 (FSMA), and this remains central …
HM Treasury
5
Conclusion
First Report - Future of financial serv…
Deregulation or simplification will in themselves impose costs on industry in the short term. Regulators should make every effort to limit the costs of compliance with the rules, for example by communicating planned changes in advance, grouping sets of changes together, and minimising the frequency of changes to those where …
Government response. We are mindful that our interventions impose costs on the firms that we regulate. We seek to balance these costs with delivering a strong system of regulation that offers long- term certainty to markets and consumers. This is vital to …
HM Treasury
6
Conclusion
First Report - Future of financial serv…
The UK’s exit from the European Union has had an impact on the UK’s ability to export financial services to the EU. However, it remains the case that the UK still has many competitive strengths as a global financial services centre. Brexit has served as a catalyst for a renewed …
Government response. The government notes this recommendation. The UK has a range of tools to pursue new market access opportunities and closer regulatory cooperation in financial services with key international partners. The government works closely with the regulators to achieve progress. The …
HM Treasury
7
Recommendation
First Report - Future of financial serv…
There is a clear view from the financial services sector that co-operation between regulators is more significant than trade deals for ensuring reciprocal market access for financial services. While trade deals can open up new markets for financial services, the Government should strive to make progress on mutual recognition as …
Government response. The government notes this recommendation. The UK has a range of tools to pursue new market access opportunities and closer regulatory cooperation in financial services with key international partners. The government works closely with the regulators to achieve progress. The …
HM Treasury
8
Recommendation
First Report - Future of financial serv…
We recommend that there should be a secondary objective for both the Financial Conduct Authority and the Prudential Regulation Authority to promote long-term economic growth. 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 …
Government response. The government notes this recommendation. Following close consultation with the PRA and the FCA, Clause 24 of the FSM Bill implements new secondary objectives for the FCA and the PRA to provide greater focus on the medium to long-term growth …
HM Treasury
9
Conclusion
First Report - Future of financial serv…
In designing the new secondary objective, there should also be some consideration for the ways in which financial services serve the ‘real economy’. The financial services industry can help deliver economic growth not simply by growing itself but also by facilitating economic growth by providing capital, credit, insurance and other …
Government response. The government notes this recommendation. Following close consultation with the PRA and the FCA, Clause 24 of the FSM Bill implements new secondary objectives for the FCA and the PRA to provide greater focus on the medium to long-term growth …
HM Treasury
10
Conclusion
First Report - Future of financial serv…
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 …
Government response. The government notes this recommendation. Following close consultation with the PRA and the FCA, Clause 24 of the FSM Bill implements new secondary objectives for the FCA and the PRA to provide greater focus on the medium to long-term growth …
HM Treasury
11
Conclusion
First Report - Future of financial serv…
The regulations made by the FCA, and the manner in which it supervises and enforces those regulations, could have a significant impact on financial inclusion. However a primary role of the FCA should not be to carry out social policy, or to fill the gaps where it is Government that …
Government response. The government notes this recommendation. As I set out in my letter of 25 July, the government’s position is that the FCA’s existing objectives and regulatory principles are already well-aligned with the government’s objectives on financial inclusion. The government does …
HM Treasury
12
Recommendation
First Report - Future of financial serv…
The FCA should make every effort to ensure that it is not designing or implementing regulation in a way which could unreasonably limit the provision of financial services to consumers who might benefit from them. When placing new requirements on firms, the FCA should consider not only the impact on …
Government response. The government notes this recommendation. As I set out in my letter of 25 July, the government’s position is that the FCA’s existing objectives and regulatory principles are already well-aligned with the government’s objectives on financial inclusion. The government does …
HM Treasury
13
Conclusion
First Report - Future of financial serv…
We welcome the clearer acknowledgement that the FCA is working to support financial inclusion, and we would urge the FCA to continue to do so. The FCA should provide an annual report to Parliament on the state of financial inclusion in the UK and the Treasury should consider putting this …
Government response. The government notes this recommendation. As I set out in my letter of 25 July, the government’s position is that the FCA’s existing objectives and regulatory principles are already well-aligned with the government’s objectives on financial inclusion. The government does …
HM Treasury
14
Recommendation
First Report - Future of financial serv…
The Treasury and regulators should publish a forward-looking schedule of approximately when they expect each EU financial regulatory file to move across to the regulatory rulebooks, including timelines for consultation, and when they expect the overall project to conclude. This should give industry a better opportunity to plan for the …
Government response. The government notes this recommendation. The process of moving from retained EU law to a comprehensive FSMA model of regulation will be a significant undertaking (for the Treasury, regulators, industry and other stakeholders) which will take several years. A large-scale …
HM Treasury
15
Conclusion
First Report - Future of financial serv…
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. These mechanisms largely seem reasonable as individual changes, but there is …
Government response. The government notes this recommendation. Throughout the development of the FRF Review, the government has considered the collective impact of the additional measures on regulators’ operations and independence. The government is confident that the final package strikes the right balance …
HM Treasury
16
Conclusion
First Report - Future of financial serv…
The Treasury should be sparing in its use of the proposed power to require regulators to review their rules, and should not use it to implicitly require the regulators to consider a general ‘public interest’ requirement for rulemaking. Each use of this power is a potential weakening of the independence …
Government response. The government notes this recommendation. Clause 27 of the FSM Bill (which will insert new sections 3RC and 3RD into FSMA) introduces a power for the Treasury to require a regulator to review its rules. This power is designed to …
HM Treasury
17
Conclusion
First Report - Future of financial serv…
The Treasury has not set out the expected impact of this new power on regulatory resources. In order to avoid imposing a significant burden on regulatory resources to conduct these reviews, and to safeguard regulatory independence, the Treasury should fund these reviews itself, whether they are conducted by regulators themselves …
Government response. The government notes this recommendation. Clause 27 of the FSM Bill (which will insert new sections 3RC and 3RD into FSMA) introduces a power for the Treasury to require a regulator to review its rules. This power is designed to …
HM Treasury
18
Conclusion
First Report - Future of financial serv…
We expect the regulators to prioritise changes where the cost for consumers is lowest in comparison to the benefit. Regulators’ approaches to assessing the marginal impact of new policies is already well-developed. We therefore believe that the creation of a new statutory panel to advise regulators on cost-benefit analysis—in addition …
Government response. The government notes this recommendation. The regulators have regular meetings and discussions with their existing stakeholder panels, in which most major policy and regulatory proposals are presented for comment at an early stage. As part of this, the existing panels …
HM Treasury
19
Conclusion
First Report - Future of financial serv…
The information the FCA has made available on how it is performing against its service standards shows a deteriorating picture. The FCA has a reputation for being too slow in its authorisation work, and this will inevitably hold back British fintech companies and crypto firms as well as larger firms. …
Government response. We recently wrote to the Committee alongside the publication of our Annual Report and Operating Service Metrics (previously referred to as our Service Standards), in light of this recommendation. We will keep the Committee updated on the progress we are …
HM Treasury
20
Conclusion
First Report - Future of financial serv…
The FCA should consider how to improve its engagement with the poorest consumers, including seeking opportunities to improve the availability of data about people who are on the lowest incomes. The FCA must seek data on the issues vulnerable consumers experience directly. Civil society groups and other researchers can provide …
Government response. In light of our role and given the scope of our powers, we do not believe that it would be appropriate or feasible for us to advise Parliament or other public bodies on the overall state of financial inclusion, or …
HM Treasury
21
Conclusion
First Report - Future of financial serv…
We will conduct scrutiny of the Prudential Regulation Authority’s ‘Strong and Simple Framework’ proposals. We will examine the impacts of the proposed reforms on the safety and soundness of smaller firms, and whether the reforms would successfully reduce the burden of regulation for these firms.
Government response. The PRA agrees that a fast and efficient transfer of all relevant retained EU law would allow us to address the complex policy framework in a comprehensive and efficient manner. We are committed to working with Treasury and other regulators …
HM Treasury
22
Conclusion
First Report - Future of financial serv…
In their review of Solvency II, the Treasury and Prudential Regulation Authority (PRA) should aim to secure a robust insurance regulatory regime that adequately captures risk and incentivises investment in infrastructure and business, but one that is also appropriately tailored to the UK market.
Government response. The government notes this recommendation. The reform of Solvency II aims to ensure deliver a robust insurance regulatory regime that is tailored to the needs of the UK insurance sector and will be guided by the government’s objectives to: • …
HM Treasury
23
Conclusion
First Report - Future of financial serv…
The Prudential Regulation Authority should consider where there is more that can be done to reduce the advantages from which large banks and insurers benefit through modelling their own capital requirements. The purpose of doing so would be not only to strengthen competition by reducing the barriers faced by smaller …
Government response. We agree with the Committee’s recommendation that “regulators should make every effort to limit the costs of compliance with the rules… [but] should not let short-term costs or the views of market participants… limit the scale of their ambition when …
HM Treasury
24
Conclusion
First Report - Future of financial serv…
The FCA should investigate whether there are more opportunities to enable larger firms to undertake controlled, supervised experiments with innovative products. For example, it may be desirable to allow firms to be more experimental with the designs of new products, by setting aside additional capital in order to compensate consumers …
Government response. Through the FCA’s Innovation services, which include the Regulatory Sandbox, Innovation Pathways, and Digital Sandbox, we work with a range of firms to promote innovation in the interest of consumers, facilitating a regulatory environment that works well for firms as …
HM Treasury
25
Conclusion
First Report - Future of financial serv…
There is a range of innovations taking place in payments systems and with alternative means of exchange, including crypto-assets, stablecoins, and central bank digital currencies. These innovations could provide opportunities to address weaknesses in international payments systems and potentially to serve consumer needs, and in the case of central bank …
Government response. The government notes the committee’s assessment that there is both opportunity and risk that comes with innovation. With respect to stablecoins, the government set out its intention in April 2022 to bring stablecoins, where used as a means of payment, …
HM Treasury