The government has tonight confirmed it will scrap controversial plans to allow MPs to overrule City regulators as part of a post-Brexit Big Bang 2.0 blueprint.
The decision to ditch the plans marked a victory for the Bank of England and the Financial Conduct Authority (FCA), who have both previously warned that introducing the so-called call-in powers would undermine their independence.
Andrew Griffith, City minister, said the government was dropping the proposals in order to retain “the operational independence of the financial services regulators”.
A Treasury source told City A.M. that while there were previously concerns that regulators were not promoting economic growth and that such powers were necessary, the move to scrap EU-era Solvency II rules and potentially unlock a wave of investment from insurers has helped put ministers at ease.
However, City A.M. understands the Treasury is still keeping the power on the table, despite not pressing ahead with it for now.
The FCA declined to comment on the decision, while the Bank didn’t immediately respond to a request for comment.
Until recently, Tory MPs were planning to introduce the powers via an amendment to the original Financial Services and Markets Bill tabled earlier this year.
Under the so-called “call in” powers, lawmakers would have been able to summon the FCA, Prudential Regulation Authority and other financial watchdogs if they judged their proposed rewriting of post-Brexit laws were not up to scratch.
Giving the government ultimate oversight of reshaping Britain’s regulatory regime after Brexit was first proposed by Rishi Sunak when he was chancellor, back in November last year.
But Square Mile overseers have roundly batted away the plans as a material risk to watering down regulators’ ability to protect consumers and ensure the financial system runs smoothly.
Governor of the Bank of England Andrew Bailey, told the Treasury select committee last week “we must not threaten” UK regulators’ sovereignty.
The FCA also sounded the alarm over the measures to the Treasury, with interim chair Richard Lloyd recently warning that even if used “sparingly”, the powers were of “great concern” to the regulator.
One senior Tory MP said the government will “now be able to maintain the line that the UK has the best independent regulators in the world”.
“The Lords will now whisk the Bill through and the government will be able to do MiFID 2 quicker,” they said.
But Labour shadow City minister Tulip Siddiq said the government “should never have been threatening the independence of the financial services regulators in the first place.”
“This U-turn is more evidence of his weakness,” she said.