This is part of our content series on the Financial Services & Markets Bill (FSM), its potential impacts and the alterations to the Bill that various advocacy groups are calling for. The FSM was announced in May 2022. It is a landmark piece of UK government legislation that will significantly change how our country regulates its financial services industry.
How democratic and accountable regulators are is a debated question. Regulators are not elected - the financial regulators we’ve mentioned throughout this piece such as the Financial Conduct Authority and the Prudential Regulation Authority are operationally independent public bodies. Their overall remit and goals, however, are set by the government. Day-to-day decisions about how to meet their broad goals are decided in-house, but there is a constant level of accountability to the Treasury; financial regulators are required to provide it with reports and information about their work, for example.
This setup has its advantages. Leaving most of the nitty-gritty stuff to the regulators means government and society can fully utilise their expertise, and not having to wait for government signoff on every decision allows regulators to work more efficiently and to avoid disruptions caused by the swings of the political cycle. But it undoubtedly gives financial regulators a lot of power to influence how the UK’s financial system looks, power which is due to grow under the Financial Services and Markets Bill. (Of course, moving all the UK’s financial regulation away from the European Union and back under the remit of British law also increases the government’s power over financial regulation.)
A lot of people are invested in making sure that other stakeholders in the financial system have input into and influence over financial regulation. These stakeholders include parliament, financial firms, public interest groups, and UK citizens.
Parliament and the government
Some concerns have been raised that the FSM will not sufficiently increase parliamentary oversight of financial regulation. The government is planning to set out the details for the new regulatory framework via what is called ‘secondary legislation’, which follows a less rigorous review process. Parliament can’t amend this type of legislation, only accept or reject it, and this binary choice leads them to almost always accept it. The huge scope of the FSM also means there’s going to be an awful lot of legislation being created in a relatively short time frame. That may mean less parliamentary oversight as MPs struggle to find the time to comb through it all.
The government ended up scrapping a proposed new ‘call-in’ power which would have allowed the Treasury to tell regulators to change their regulation if the government deemed it to be in the public interest. But a new Treasury sub-committee has been set up, whose job will be to scrutinise financial services regulation. It will look at whether regulators are acting within their delegated power and whether their policies are “justified and desirable”.
The financial services sector
Financial services firms are already quite adept at making their voices heard in discussions about regulation. They and their lobbyists secured a third of all Treasury minister meetings in 2020 and 2021, a larger proportion than any other sector. Financial services representatives also dominate responses to consultations about financial service policy. It is also not uncommon for people who work in government financial policy to move on to work at financial firms or as financial lobbyists, leading to strong networks between the two areas.
There have been calls to use the FSM Bill to improve transparency around this situation, on the basis that it will reduce corruption and build up public trust. For example, there could be a mandatory register for financial sector lobbyists, and required disclosures of their communication with government ministers alongside whether they have previously held public office. Other countries, including the USA and Ireland, already have similar rules.
The public and public interest representatives
Ordinary people living in the UK are massively impacted by what its financial sector does, and therefore have a big stake in ensuring financial regulation matches their own needs and wants. But historically the public have been very underrepresented when it comes to stakeholder engagement for financial regulation.
A solution would be to find ways to increase public participation in things like policy consultations and regulatory panels. Quotas could be one way to do this - there have been calls for half of all panel respondents to be public interest representatives for example. Ensuring information on regulation is easily accessible and communicated in a way that is understandable is another. Resources could be directed to making sure people, especially those in more vulnerable circumstances, are able to participate in discussions about financial policy. Regulators could also be given a statutory duty to consult the public, as some are already required to do for financial firms.
It’s easy to think you’ve got nothing to do with the economy – you can’t see it, feel it, or engage with it in any tangible way. But in fact the economy is just the result of how you live your life and how everyone around you lives theirs…