The second of my pieces considering the changes that have been made to the Financial Services and Markets Bill during its time in the Lords focuses on regulator accountability.
It’s fair to say that this was the issue that attracted the greatest level of interest, not least ensuring that regulator independence was not allowed to be confused nor conflated with accountability.
As Minister Penn put it:
“The Government have been clear that these increased responsibilities must be balanced with clear accountability, appropriate democratic input, and transparent oversight. The Bill therefore introduces substantial enhancements to the scrutiny and accountability framework for the regulators.”
As a result of colleagues and my discussions during passage of the Bill the Minister introduced further measures, saying:
“…the Government have brought forward a series of amendments which, taken together, seek to improve the Bill through further formalising the role of Parliamentary accountability, supporting Parliament through independent analysis and scrutiny, and increasing reporting and transparency to drive overall accountability.”
Much of our debates were concerned not only with Parliamentary scrutiny but also assuring (as is obviously entirely achievable) that the regulator’s objectives continue to be carefully balanced and delivered to. Not least in relation to their new objective concerning international competitiveness. As Minister Penn stated:
“The Government have been clear that they expect there will be a step change in the regulators’ approach to growth and competitiveness following the introduction of the new objectives, while maintaining high regulatory standards. It will therefore be important to have detailed information available to scrutinise how the regulators embed their new objectives into their day-to-day functions.”
As a result of further discussions with the Treasury team ahead of this stage of the Bill, the Minister again announced several improvements in relation to Parliamentary scrutiny. The Minister made clear,
“The amendments will place a statutory requirement on the regulators to provide a clear process for stakeholders, including the statutory panels, to make representations in relation to rules and a statutory requirement to set out how they will respond.”
The changes have significantly strengthened the Bill in terms of Parliamentary scrutiny. It is also gratifying that the Government adopted the wording of several of my amendments to achieve this. As I said,
“Ultimately, as the Minister said, this is one of the most significant changes to financial services regulation in a generation. It is important that, in structuring the role of the regulator, we have the right level of scrutiny and the right requirements for the regulators to provide the information required.”
I also asked the Minister what action was being taken to improve the speed of authorisations for those we want to attract from overseas to come and work in our financial services industry. The Minister’s reply was that
“…the Government share those concerns. In December, the Economic Secretary to the Treasury wrote to the CEOs of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), setting out the importance of ensuring that the UK has world-leading levels of regulatory operational effectiveness.
“Publishing more and better data detailing the FCA and PRA’s performance is critical to meeting these aims. That is why, in their reply to the Economic Secretary’s letter, both CEOs committed to publishing more detailed performance data in relation to authorisation processes on a quarterly basis.”
It is positive to see that this is already driving change as the Minister said:
“On 19 May, both the FCA and the PRA published their first set of enhanced quarterly metrics relating to their authorisation’s performance, including the average time taken to process applications. The reports demonstrate that the regulators, particularly the FCA, are making progress towards meeting service-level targets, while recognising that there are further improvements to be made on some measures. The Government will continue to monitor this data to assess performance and discuss continuing efforts to improve operational efficiency with the regulators.”
Colleagues and I were also keen to ensure that the new cost benefit panels had the right level of industry membership and reporting responsibilities to Parliament. Again, the Government made these changes to the Bill, addressing this, the Minister said,
“…the Government have heard the calls from across the House for further reassurance that the regulators’ approach to panel recruitment will ensure that panel members are drawn from a diverse range of stakeholders and are sufficiently independent of the regulators.
“The Government have therefore introduced Amendments 23, 24, and 57, which will require the FCA, the PRA and the PSR, as part of their annual reports, to set out how recruitment to their panels has been consistent with their statements of policy.
“The Bill also already introduced measures to strengthen the quality of the regulators’ cost-benefit analysis, including the introduction of new, independent panels to support the production and development of CBA. It is important that CBA reflect as accurately as possible the costs and benefits to firms and consumers of implementing and following regulation. In assessing this, the experience of regulated firms themselves is vital.
The Government are grateful to my noble friend Lord Holmes for raising this issue in Grand Committee, and again through Amendments 44 and 47 today. The Government have reflected on that earlier debate and introduced Amendments 43 and 46, which will require both the FCA and the PRA to appoint at least two members to their CBA panels from authorised firms.”
Concluding her remarks, Minister Penn highlighted…
“…the fact that the work of the Consumer Panel and the new CBA panels has been of keen interest to noble Lords in earlier debates. The Government will keep this under review.”
In relation to the proposed office for financial regulatory accountability (OFRA) it was disappointing that the Government were not moved to pursue this. As my colleague Lord Trenchard made clear…
“…in order for Parliament to be able to hold the Treasury and the regulators to account, it is necessary to have an independent source of information. The proposed office would provide that.”
Though not minded to legislate for OFRA, the Government did move significantly in enabling a joint committee of both Houses of Parliament to be established to perform this function.
The Government have made considerable changes to enable greater scrutiny and accountability of our financial services regulators for the benefit of both, crucially, for the benefit of consumers and firms alike.