Treasury committee chairman Andrew Tyrie has warned the FCA and the Bank of England are facing “overload” and says regulators could be powerless in preventing the next financial crisis.
Speaking during a debate on the Financial Services Bill on Monday, Tyrie said the Government’s legislative agenda – including the pension freedoms and the introduction of the senior managers regime next month – is placing “huge demands” on both the Bank and the FCA.
He said: “We may be close to the point of regulatory and supervisory overload. By that, I mean that the Government and Parliament could be raising expectations of what they can achieve to a point where they will never be perceived to have succeeded.
“We need to ask just how much national regulation can achieve in an open financial world. The truth is: perhaps not that much, and certainly less than many people think.”
Tyrie added that policymakers “probably cannot stop the next financial crisis”.
He said: “The best we can hope for is to delay it, to reduce its impact by developing somewhat stronger institutions, including financial institutions, and to give us a better prospect that regulators are a bit more alert and prepared than they were in 2007/08.
“In the long run, competition must take more of the regulatory strain. In markets for most products and services, customers can vote with their feet and barriers to market entry are tolerably low.
“Businesses with weak balance sheets or poor customer standards go to the wall. Neither of those is yet the case in banking. We are a long way from the point where competition can be a full substitute even for conduct regulation in banks, and the contagion risk inherent in the banking system would make supervisory withdrawal and reliance on market disciplines even more hazardous.
“Until competition is much stronger and market discipline more of a restraint, there will be no substitute for a strong and sometimes interventionist Bank of England and an effective conduct regulator.”