It was a relief to hear a loud and clear warning from the Treasury Committee last week about the UK government’s pursuit of an ‘international competitiveness’ goal for financial sector regulators after Brexit. .
The cross-party committee warned “of the danger that the lessons of the financial crisis will be forgotten as memories of the crash fade”.
The House of Commons committee also made clear its view that “competitiveness should not become a primary objective of financial regulators”.
And he warned against “any inappropriate weakening of the UK’s strict regulatory standards”.
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The committee also reaffirmed its “commitment to regulatory independence”.
And he said he would “remain alert to any evidence that regulators are under undue pressure from the Treasury to inappropriately weaken standards.”
The Treasury, for its part, appeared to be scrambling to strike that loud and alarming Brexit drum when it released details of the Financial Services and Markets Bill on May 10.
He said: “The Bill will make the most of the opportunities of Brexit, establishing a consistent, agile and internationally respected approach to financial services regulation that is right for the UK.”
It was still the case – the “opportunities of Brexit”. Such opportunities are conspicuous by their absence – while the damage of Brexit is evident on a myriad of fronts, including skills and labor shortages and the stifling effect on exports – but this does not don’t stop the politics.
Key elements of the bill, the Treasury noted, involve “repealing EU financial services law and replacing it with a made-for-UK approach to regulation” and “updating the aims financial services regulators to ensure greater focus on growth and international competitiveness”.
The bill has raised concerns about weakening regulation. And that concern is completely understandable given the deregulatory passions of this Johnson administration and those who support it.
The Tories’ decision to make ‘international competitiveness’ a goal of the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority puts a finger on the Tories (whom you still see from time to time) to that Labor is responsible for the global financial crisis sound even dumber.
The idea that the financial sector would have been regulated more by the Tories than by Labor is bizarre and unbelievable.
Commenting on current conservative plans for the financial sector, the Treasury Committee said in its report released last week: “We recommend that there be a secondary objective for the Financial Conduct Authority and the Prudential Regulation Authority to promote economic growth at long term. . The wording will be crucial: the pursuit of short-term international competitiveness is unlikely to lead to long-term economic growth or international competitiveness if achieved by weakening the UK’s tough regulatory standards. The weakening of standards could reduce the financial resilience of the UK financial system and undermine international trust in this system and the companies that make it up.
It is indeed crucial that the regulation is not weakened in this way.
The commission states in its report: “When designing the new secondary objective, consideration should also be given to how financial services serve the ‘real economy’. The financial services industry can help ensure economic growth not only by developing itself, but also by facilitating economic growth by providing capital, credit, insurance and other services to businesses in the real economy”.
This is another important point.
And the Treasury Committee warns: “The Treasury should continue to reject any request that an objective of growth and/or competitiveness become a priority objective. This would increase any pressure on regulators to trade off competitiveness for resilience, and undermine the ability of regulators to perform their core functions. There is a danger that as memories of the financial crisis fade, its lessons will be forgotten.
Indeed, there is such a danger.
Giving its views on the future direction of financial services regulation, the Treasury Committee interestingly observes that Brexit should not in itself be the cause of ‘instantaneous’ or ‘dramatic’ changes.
It absolutely is, though you could be forgiven for thinking the Tories weren’t determined to make as much noise as possible about Brexit, even though they should (given that it’s an absolute disaster), maybe just talk about it.
The Treasury Committee notes that “the UK has historically wielded significant influence in shaping EU regulations”. Indeed, he has.
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While believing that “there will be opportunities to adapt legacy European regulations to the UK market and to seek opportunities for simplification, while bearing in mind continued compliance with global standards”, the commission adds: “The Treasury should respect the principle of regulatory independence, and should not pressure regulators to weaken or water down regulatory standards, or to agree to changes in the regulatory framework that might impede regulators’ ability to achieve their primary objectives.
Alison Thewliss, SNP MP and Treasury committee member, appeared to sum up many people’s concerns about the Tory proposals in a Herald article last month, writing: “Regulators should be independent watchdogs making decisions in the public interest, not in the interests of financial interests. lobbyists, who already have virtually unlimited access to policy makers. We need strong and targeted regulation to ensure that the financial sector continues to contribute effectively to our economy. Brexit is a problem created by the British government and cannot be solved by a race to the bottom of standards which risks plunging us headlong into another financial crisis.
It would certainly be difficult to disagree with all of this.
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The Treasury Committee also recommends that the Financial Conduct Authority “consider financial inclusion in the development of its rules” and “should also consider how to improve its engagement with poorer consumers and seek data on the issues that vulnerable consumers face directly”.
These seem unlikely to be priorities for the Conservatives, but they are very valuable suggestions.
What is absolutely crucial is that financial regulation and politics must be separated. And it is particularly important that the Tories’ feverish post-Brexit politics be completely isolated from the serious and sober task of regulation. We must indeed be wary of those who lobby and campaign for anything that would weaken the regulation of the UK financial sector.
And we must ensure that the lessons of the past are not forgotten, for the good of the population as a whole, in these dark economic times.