Liz Truss is set to give politicians the power to veto decisions made by regulators if she becomes prime minister, as a war of words between the Conservative Party leadership candidate and the Bank of England is set to intensify.
Claiming that organizations such as the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority are slowing the pace of post-Brexit reforms, Truss says he will press ahead with plans to give ministers a power called ” call” on regulatory decisions when they believe it is in the public interest.
Chancellor Nadhim Zahawi was to include the measure in the government’s flagship Services and financial markets bill last month. However, it opted to backtrack at the last minute as key regulators such as Bank of England Governor Andrew Bailey raised concerns about the move’s impact on the long-standing principle of regulatory independence .
Instead, politicians have been given weaker power to order regulators to review their decisions, rather than being able to overturn them entirely, while Zahawi is giving ministers more time to debate “such an important decision” on the more complete call.
Truss looks set to follow the lead of rival Rishi Sunak, who initially proposed the call to crack down on over-caution by “faceless regulators” and has told allies he “definitely” wants her to run if she becomes prime minister. the Financial Timesreports.
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Parliament is currently in recess, but could add the clause to the bill as the legislative process progresses on its return. As it goes under the microscope in both the House of Commons and the Lords, it is unlikely to become law before April or May next year.
Bailey remains concerned about a perceived threat to the independence of regulators and the potential to lower consumer protection standards and market safety, but the idea of a subpoena power has also caused concern in other parts of the city .
“You have all kinds of potential conflicts of interest when you open this Pandora’s box,” one former senior regulator tells Financial News.
Without additional controls, there is a risk “that the Treasury will bypass effective parliamentary scrutiny by putting pressure on the FCA and PRA to do its bidding,” wrote The Economist’s former UK and European economics editor Paul Wallace in an article for Financial World, the magazine of the London Institute of Banking and Finance.
Although the FCA’s chief executive and chairman are political appointments, the organization remains independent of government.
“I think the government is putting itself in a dangerous situation and has not thought about the consequences of having a much more direct influence on regulation,” a city lobbyist tells FN. “It makes ministers much more likely to be blamed when something goes wrong. One of the reasons we have so many independent regulatory bodies and quangos is that, as well as leading to better decision-making in theory, because policy is takes away from decisions – it also insulated politicians from blame.”
Covid shows that “when the FCA stays focused it can do things quickly”, adds the head of a capital markets business.
To contact the author of this story with comments or news, email Justin Cash
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