The Treasury select committee has attacked the Government’s latest proposals for the Financial Conduct Authority warning they could lead to a defective regulatory system, extra costs on the industry and consumers and ineffective accountability.
In a report published last night, the committee calls on the TSC to have the power to demand retrospective reviews of the incoming market regulator’s activities. It also restates the committee’s desire for the FCA board to be given a duty to publish its minutes, as suggested by FSA chairman Adair Turner in November, and for it to be responsible for responding to requests for information from the TSC.
The report says the FCA should be required to carry out more comprehensive cost benefit analyses with increased consultation with firms, representative bodies and regulatory panels before introducing regulations. It says the regulator’s chief executive should face pre-appointment scrutiny by the TSC, as is the case for members of the monetary and financial policy committees.
TSC chairman Andrew Tyrie (pictured) says benchmarks for cost benefit analyses to meet should be included in the bill because costs imposed on firms through regulatory rules end up being paid by consumers. He also says the cost of regulation has been “neglected” in the past and that cost benefit analyses should be carried out on regulations already in place.
Tyrie warns again that work on the Financial Services Bill is being rushed and that unless sufficient time is given to getting the reforms right, the result could be a “defective” regulatory system.
He says: “The FCA has been given huge powers. It is not enough, as the Government has proposed, merely to match the weak, pre-existing accountability arrangements of the FSA. They must be substantially strengthened if the FCA is adequately to be accountable to Parliament and, through Parliament, to the public.
“It was only as a result of intensive committee pressure that the FSA published an account of the UK’s biggest ever banking failure, at RBS. It should not be necessary for the committee to engage in such protracted exchanges with the regulator in order to ensure transparency.”
The committee remains concerned about the FCA having a strategic objective of “ensuring financial markets and the market for regulated financial services work well” as well as three operational objectives of “securing an appropriate degree of consumer protection”, “protecting and enhancing the integrity of the UK financial system” and “promoting effective competition in the interests of consumers”. The report says the Government is “confused” over whether operational objectives supplement the strategic objective or act as a check on it.
The Government wants the Prudential Regulation Authority to have a veto over the FCA so it can stop it taking action it feels might interfere with its objective of ensuring the “safety and soundness” of firms. However, Tyrie says responsibility for the stability of the financial system rests with the Financial Policy Committee. “If anyone is to wield a veto over the FCA, it should therefore be the FPC and not the PRA,” he says.