The Chair of the Treasury Select Committee, Andrew Tyrie MP, commented:
"The Committee remains deeply concerned that this legislation is being rushed.
The structure and objectives of the FCA will sit at the heart of this new regulatory system. Unless sufficient time is given to getting these reforms right, we could end up, once again, with a defective regulatory framework."
Areas of concern
The report highlights four main areas of concern (Quotations are from Andrew Tyrie MP):
1. On accountability
The Committee has called for the accountability of the FCA to be enhanced in four main areas:
- The board of the FCA should publish full board minutes of each meeting
- The CEO of the FCA should be subject to pre-appointment scrutiny by the Treasury Committee
- The FCA board should be responsible for responding to requests for factual information and papers from Parliament
- Parliament, through the Treasury Committee, should be able to request retrospective reviews of the FCA’s work
"The FCA has been given huge powers. It is not enough, as the Government has proposed, merely to match the weak, pre-existing accountability arrangements of the FSA; they must be substantially strengthened if the FCA is adequately to be accountable to Parliament and, through Parliament, to the public.
It was only as a result of intensive Treasury Committee pressure that the FSA published an account of the UK’s biggest ever banking failure, at RBS. It should not be necessary for the Treasury Committee to engage in such protracted exchanges with the regulator in order to ensure transparency.
Without a statutory base for Parliamentary involvement the temptation will always exist for the relevant authorities to try and brush matters under the carpet.
The Treasury Committee, on behalf of Parliament, must have the authority to require retrospective reviews of the FCA’s work."
2. On the objectives of the FCA
The Committee remains concerned about the effect that an overarching objective is likely to have on the operation of the FCA. Indeed, the Government appears confused about whether it wants to impose a strategic objective or a "mission statement." These are not the same thing.
"A strategic objective is not the same as a “mission statement.” The Government must provide far greater clarity about what it is trying to achieve. A mission statement should have no place in primary legislation.
We need the Government to explain whether it is intended as a supplement to the primary objectives, now called operational objectives, or to act as a check and a balance on them.
The case has not been made for it"
3. On the PRA veto over the FCA
The Committee believes the Financial Policy Committee (FPC) – rather than the Prudential Regulation Authority (PRA) as suggested by the Government - should be granted a veto over the FCA in areas relating to financial stability.
"Financial stability is the responsibility of the FPC. If anyone is to wield a veto over the FCA, it should therefore be the FPC and not the PRA".
4. On cost-benefit analysis
The Committee has called on the Government to include in the Financial Services Bill requirements for far more extensive cost-benefit analysis to take place and for greater consultation with firms, representative bodies and panels prior to the introduction of new regulations.
"Regulatory and cost burdens on the financial services sector often seem to rise inexorably. It is consumers who have to foot the bill for these costs.
Too often the FSA has treated cost-benefit analyses on new regulations as a box-ticking exercise.
Worse still, the growth of the regulatory burden from existing regulation over time has been neglected. Periodic cost-benefit reviews of existing regulations are essential."