Accountability in Financial Regulation

Andrew Griffith Excerpts

Thursday 9th February 2023 Commons Chamber

[The Economic Secretary to the Treasury (Andrew Griffith)]

I congratulate my hon. Friend the Member for Yeovil (Mr Fysh) on securing this important debate. He has a distinguished background in finance, and clearly knows of what he speaks. I note his reference to the thoughtful amendments tabled to the Financial Services and Markets Bill by the noble Lord Lilley. I imagine that they draw on the work that Politeia has published by Barnabas Reynolds on the rules for regulators. This is an important topic, and one the Government and I take enormously seriously. We are going through the process of rewriting financial services legislation for a generation. My colleagues and I—the Chancellor and everyone in the Treasury—are very concerned that we get that right. The accountability of our financial services regulations, a sector that comprises over 10% of the entire GDP of our economy, is of the utmost importance. Unsurprisingly, a number of colleagues have raised this matter in both Houses.

The Government have a clear vision for the future: an open, sustainable and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens across all four nations of the United Kingdom. That was reiterated in the Edinburgh reforms late last year. Together with the Financial Services and Markets Bill, they amount to the most far-reaching reforms in a generation. I hope my hon. Friend would agree with me on that. The Bill contains a number of measures to address precisely the purposes and concerns my hon. Friend raises. It updates the regulators’ objectives to ensure that for the very first time they consider the sector’s critical role in supporting the UK economy. The Financial Conduct Authority and the Prudential Regulation Authority will be given a new secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium and long term. That is absolutely right, and the Government expect that to result in real change and in different outcomes.

My hon. Friend referred to the amendments to the Financial Services and Markets Bill tabled by Lord Lilley in Committee in the other place. They seek to enhance the role of the judiciary to provide additional checks and balances on the exercise of regulatory power. He is quite correct when he talks about the many benefits of common law—predictability and certainty among them—but that is not the only way. My hon. Friend is passionate about seizing the opportunities of Brexit for this country, and I reiterate to him that the Government, through the Bill as it relates to financial services, are repealing retained EU law. It will remove prescriptive provisions and hundreds of pieces of retained EU law entirely.

On judicial accountability, which we see in many domains, my hon. Friend raises a number of examples, including on employment tribunals. It will, of course, be up to the UK courts to determine how domestic legislation and rules are interpreted. All the corpus of financial services regulation will ultimately sit subject to that.

My hon. Friend raised the Financial Regulators Complaints Commissioner and a case of which I was not aware of its findings, although voluntary, being ignored. Let me say from the Dispatch Box that were that to be a pattern of behaviour, that cannot be right. That is not a reasonable expectation from our regulators. It is something we should look at, were that be the case. There is an existing mechanism for redress and it is important for all of us that that is taken with the most significant gravity.

Parliament has a unique, special role and responsibility in relation to the scrutiny and oversight of our regulators. Select Committees—the Treasury Committee in particular but not exclusively—provide scrutiny of financial services policy through, for example, Select Committee inquiries and regular hearings on the work of regulators. The Treasury Committee has a dedicated Sub-Committee on financial services regulations, and it is currently conducting an inquiry into the PRA’s strong and simple framework. In addition, the Committee conducts pre-commencement hearings following the appointment of the chair and chief executive of the FCA and the chief executive of the PRA, and can subject them to ongoing scrutiny hearings. If the Committee does not wish to support the appointment of the FCA’s chief executive, it can recommend that it be put to a vote on the Floor of the House.

There are a number of mechanisms in the UK’s domestic framework that allow the Treasury to hold the regulators to account. For example, under section 1S of the Financial Services and Markets Act and section 7F of the Bank of England Act 1998, the Treasury

“may appoint an independent person to conduct a review of the economy, efficiency and effectiveness”

of the use of resources by the FCA and the PRA respectively. I am not aware of that mechanism having been used, but it strikes me as a particularly useful one. My hon. Friend and others may wish to make representations to the Treasury if in future they still consider that there are deficiencies in how regulation is carried out.

HM Treasury can direct the regulators to carry out an investigation into specific events if it is in the public interest. FSMA also provides the Treasury with the ability to make recommendations to the regulators in open letters on issues related to matters of economic policy. Finally, the Government use regular engagement with the regulators to hold them to account. As the Minister responsible for financial services regulation, I engage regularly with the FCA and PRA’s chief executives on a wide range of issues, including their performance. I hope that my hon. Friend will take it in good faith that they are suitably challenged about how we are getting the financial services we need in this country.

I accept that there is more to do. In the Financial Services and Markets Bill, at the behest of my hon. Friend and others, we have introduced a package of measures to strengthen the accountability to Parliament of the PRA, the FCA and the Payment Systems Regulator, to strengthen their relationship with the Treasury and, importantly, to enhance their engagement with the firms that they regulate. I am grateful for the positive engagement of colleagues in both Houses who have made a number of very sensible suggestions in Committee. I hope that our incorporation of some of those suggestions in Government amendments assures colleagues that we are taking the matter, and their concerns, very seriously.

I fully understand that many people in the industry are concerned about not just the volume of rules but the speed with which decisions on those rules are made. I was grateful, although disturbed, to read the recent TheCityUK report revealing that 90% of those surveyed about the FCA felt that the efficiency of authorisations was in some way detrimental to the attractiveness of the UK as a place to do business. That pains me, but I am content that my concern is shared by the leadership of the organisations; I have been assured that improving performance in that respect will be a priority. The Bill will require the FCA and the PRA to report on their performance, not only on operational measures but in the discharge of their new growth and competitiveness objective, as part of their annual report.

I thank my hon. Friend again for raising such important points and for kindly staying until the Adjournment for recess. I know that his concerns are shared by many colleagues in this House and will continue to be taken seriously. We have a great opportunity to get this right, and it is important that we do so. I will dedicate myself over the coming weeks and months to working with colleagues to ensure that we get the best outcomes and that we listen carefully to what he and other Members, in both Houses, have said about this important matter.

Question put and agreed to.