As regulators gain new powers following the UK’s departure from the EU, the committee, made up of cross-party MPs, said the Treasury should respect regulatory independence and not pressure them to “weaken” or “water down” financial regulation standards.
MPs said that while Brexit should not in itself be the cause of instant or dramatic changes to financial services regulation, there will be opportunities to seek simplification while being mindful of continued compliance with global standards.
“The financial services sector is at a turning point, with regulators taking on new powers following the UK’s exit from the EU,” said Mel Stride MP, chair of the Treasury Committee.
“While it is vital that regulators are not leant on to inappropriately water down regulations, and the committee will remain vigilant in this area, there are likely to be real opportunities to lessen regulatory burdens without weakening standards.”
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The committee is urging the Treasury to continue to reject any calls for international competitiveness to become a primary objective, as this “would increase any pressure on regulators to trade off competitiveness against resilience” and undermine their ability to deliver on their core functions.
MPs want to see regulators take the importance of growing the economy into account and recommend that the FCA and the PRA are given a secondary objective to promote long-term economic growth.
The committee also recommended that the FCA should have regard for financial inclusion in its rule-making and consider how to improve its engagement with the poorest consumers.
Simon Morris, partner at CMS, said: “The Treasury Committee has three key reservations over the government’s benefits-of-Brexit proposals to shift the goalposts of financial regulation. These are surprisingly negative and suggest the committee sees the possibility of change as a prospective bonfire of investor protection rather than a much-needed flexing of regulation towards the needs of the UK market and its customers.
“First, don’t change too much. While UK regulation can be tailored or simplified, the committee does not want to see too much change, or for it happening too quickly. Next, no watering down. The committee believes that the Treasury wants to weaken regulatory standards to cut costs and attract more business. But there is little evidence for this, and the minister is crystal clear that there is no race to a bottom of failed firms and ruined investors.
“Last, no emphasis on competitiveness. The committee does not want the regulators to have even a secondary objective to ensure the UK’s long-term competitiveness. But competitiveness has never implied laxness. A properly risk-attuned rulebook overseen by a slick and efficient regulator, both at present lacking, would make a major contribution to the UK’s future prosperity. The committee recognises this by recommending that the regulators review capital requirements, foster innovation and enhance their own efficiency.”