Recommendation 4

HM Government Acknowledged

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 to the government’s approach. The FSMA model delegates the setting of detailed regulatory standards to regulators, that work within an overall policy framework set by government and Parliament but which are operationally independent. The FRF Review proposed establishing a comprehensive FSMA model of regulation by repealing retained EU law relating to financial services, so that the regulators are able to make the direct regulatory requirements which apply to firms in their rulebooks, in accordance with this framework. However, more responsibility for the regulators must be balanced with effective policy input and effective oversight from Parliament and government. Parliament and government will continue to play an important strategic role in setting the policy framework within which the regulators operate and holding them to account for their actions to advance their statutory objectives. The November 2021 FRF Review proposed measures to achieve this. These measures were broadly welcomed by over 100 respondents. Indeed, some respondents to the consultation felt that there should be further measures on accountability, though there was no consensus on exactly what these further measures should be, or whether this accountability should be to stakeholders, Parliament, or the Treasury. The recently introduced Financial Services and Markets (FSM) Bill includes a package of measures which seek to increase the accountability of the PRA, the FCA, the PSR, and the Bank of England1 to Parliament, to strengthen their relationship to the Treasury, and to enhance their engagement with stakeholders, reflecting their increased responsibilities now that the UK has left the EU.