Is a shakeup of the UK’s financial regulatory framework on the horizon?


Amendments to the Financial Services and Markets Bill has put the UK’s financial regulatory watchdogs in the spotlight as Parliament seeks to boost their accountability.

This move comes as a response to growing concerns over regulatory scrutiny in the post-Brexit era, where the UK’s regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), have inherited significant powers.

The City is perceived to be lagging behind its global counterparts due to the ramifications of certain regulatory decisions. These concerns have sparked a slew of proposals aiming to enhance the accountability of the PRA and FCA. Among these is the introduction of a competitiveness mandate for the regulators, an essential reform proposed by the Bill. The government has introduced measures to enforce this mandate, mandating the regulators to report twice to the Treasury on their compliance with the duty to advance competitiveness and growth.

Lord Bridges has reignited discussions around the creation of an Office for Financial Regulatory Accountability (OFRA) within a year of the Bill’s implementation. This body would scrutinise regulations that “restrict domestic competition” and “reduce international competitiveness”, examining and reporting on the performance of both the FCA and the PRA.

Furthermore, Lord Tyrie proposed the independence of the Regulatory Decisions Committee (RDC), an FCA subcommittee. Concerns have been raised about the committee’s independence given that its resources and appointments come from the FCA.

Douglas Cherry, a regulatory partner at Fladgate, supported the proposals. He said, “The FCA enforcement process has always been skewed in favour of the authority which sets the parameters of the investigation scope, process and outcome. Creating greater separation can only be a good thing for the perception and hopefully, reality of independence between the investigative and outcome elements of the process.”

Ultimately, while these reforms are well received, experts argue that lawmakers should prioritise equipping scrutiny bodies with sufficient funds, autonomy, and industry expertise to hold the regulators accountable effectively.

A report earlier this year from TheCityUK has found that financial regulatory authorisations at the FCA and the PRA can be slow and inefficient.

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