Finance

Truss argues for powers to overrule City regulators


Liz Truss is ready 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 escalate.

Claiming that organisations like the Financial Conduct Authority and Bank of England’s Prudential Regulation Authority are slowing the pace of post-Brexit reforms, Truss is signalling she will push ahead with plans to give ministers a so-called ‘call in’ power over regulatory decisions when they feel it is in the public interest.

Chancellor Nadhim Zahawi was set to include the measure in the government’s flagship Financial Services and Markets Bill last month. However, he elected to row back at the last minute, as key regulators like Bank of England governor Andrew Bailey raised fears about the impact of the move on the long-held principle of regulatory independence.

Instead, politicians have been given a weaker power to order regulators to review their decisions, rather than be able to override them completely, while Zahawi gives ministers more time to debate “such an important decision” on the fuller call-in.

Truss looks set to follow the lead of rival Rishi Sunak, who initially proposed the call-in to crack down on the excessive caution of “faceless regulators”, and has told allies she “definitely” wants it introduced if she becomes Prime Minister, the Financial Timesreports.

READ Landmark Brexit bill grants government checks on regulators

Parliament is currently in recess but could add the clause into the bill as it works its way through the legislative process on its return. As it goes under the microscope in both the House of Commons and Lords, it is unlikely to become law before April or May next year.

Bailey reportedly remains concerned about a perceived threat to the independence of regulators and the potential to lower standards of consumer protection and market security, but the idea of a call-in power has also caused concern in other parts of the City.

“You get all sorts of potential conflicts of interest when you open up that Pandora’s Box,” a former senior regulator tells Financial News.

Without additional checks, there is a risk “that the Treasury bypasses effective parliamentary scrutiny by exerting pressure on the FCA and PRA to do its bidding,” former Britain and European economics editor at The Economist Paul Wallace wrote in an article for Financial World, the magazine of the London Institute of Banking and Finance.

While the chief executive and chair of the FCA are political appointments, the organisation remains operationally independent from government.

“I think the government’s getting itself into a dangerous situation and hasn’t thought through the consequence of having much more direct influence over regulation,” one City lobbyist tells FN. “It makes it much more likely that ministers will be blamed when something goes wrong. One of the reasons we have so many independent regulatory bodies and quangos is that – besides leading to better decision making in theory because politics is taken out of the decisions – it also insulated the politicians from blame.”

Covid shows that “when the FCA remains focussed it can do things quickly”, the head of one capital markets business adds.

To contact the author of this story with feedback or news, email Justin Cash

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