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How will the Financial Services & Markets Bill impact financial regulation?

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.


Regulation is the rules everyone in the financial system has to follow. These rules are set by the financial regulators. In the UK our three main financial regulatory bodies are the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Financial Policy Committee (FPC). The PRA and FPC are part of the Bank of England. While the UK government created these regulators and sets their overall framework and objectives, these regulators generally function and make day-to-day decisions independently. 

How will the Financial Services & Markets Bill change financial regulation?

Of the various changes to UK financial regulation the FSM lays out, two in particular have dominated discussions due to the size of their potential impact. These are:

1) Giving regulators (particularly the FCA and PRA) and the Treasury major new powers over the financial services sector.

2) Creating a new statutory objective (i.e. key goal) for the regulators to ‘promote international competitiveness’ in the UK financial sector.

Another potentially influential aspect of the FSM, a new ‘call-in’ power for the government, has been dropped from the Bill.

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New powers for regulators and the Treasury

The FSM would give both the Treasury and the financial services regulators broad new powers over the financial services sector. The industry is currently still operating largely under the EU-created regulatory framework it was bound to before Brexit. If the FSM becomes law in its current form, the Treasury and regulators will have the ability to remake and replace these rules as they see fit. However, there has been significant pushback from various parties who are concerned that these new powers are not sufficiently accompanied by an increase in oversight and accountability from parliament and from the public.

International competitiveness objective

Competition, in the economic sense, means there are multiple businesses providing a good or service, and therefore multiple options for consumers to choose from. It’s generally seen as a positive thing for the general public, because companies are incentivized to constantly make their products or prices better so that customers will pick them over their rivals. This is why financial regulators in the UK have long been tasked with promoting competition between UK financial service companies. 

The FSM wants to expand this mandate by asking regulators to make decisions with an eye on increasing the competitiveness of UK financial services firms compared to their counterparts around the world. Increased global sales by UK financial firms could bring various benefits to the UK as a whole, from prestige to more British jobs and more tax being paid to the UK government. 

But many financial sector stakeholders believe that giving this objective to the regulators is inappropriate and risks creating damaging financial instability. Stakeholders who have noted their concern include the International Monetary Fund (IMF) which is the major financial agency of the United Nations, and the Treasury Select Committee (TSC), which is a parliament committee whose job is to examine the policies and spending of the Treasury. 

The issue is that promoting the British financial industry abroad stands in tension with regulators’ other mandate of supervising the sector and stopping any reckless behaviour. That’s because financial firms that are bound by looser regulation tend to be able to offer products that are more appealing to customers - perhaps because they’re cheaper, or offer higher returns, or are available to more people. The flip side is they’re also much riskier, and can cause substantial financial damage to individuals and whole economic systems if they implode, as seen during the 2008 financial crisis. 

There are plenty of countries in the world that currently have much less strict financial regulation than the UK, so the worry is that UK regulators will feel pressured to reduce UK regulation in the name of improving the country’s international competitiveness. 

The ‘call in’ power

The government also proposed adding a new ‘call-in’ power to the bill, which would have allowed the government to “direct a regulator to make, amend or revoke rules where there are matters of significant public interest”. However, this aspect of the FSM was dropped after significant pushback. 

The critics were concerned that a call-in power could tempt governments to push for regulation that could improve their electoral prospects or please influential special interest groups rather than deliver the best long-term outcomes for society. Even if governments ended up not being susceptible to this, there was worry that the belief they could be would itself have a 'chilling effect' on regulators, who might avoid implementing actions they thought would be unpopular with the government.


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