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The creation of the new House of Lords (HoL) Financial Services Committee is not a surprise and represents an important and positive innovation in financial services (FS) regulation.
The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.
It is another step in completing the post-Brexit regulatory architecture.
There have been a number of signs heralding the HoL's increasing interest in the regulation of FS:
In many ways, it is also welcome because it recognises three important features of the FS sector:
Since leaving the EU, the UK has moved towards a model where the regulators increasingly exercise powers that seem executive in nature. Whilst much focus is on the regulators' rule-making powers, the reality is that these rule-making powers are really the mechanism for delivering policy decisions that will now expressly be made by the regulators (one should not underestimate the regulators' previous, albeit indirect, influence on policy-making). One of Parliament's constitutional functions is to control and oversee the use of executive powers. The HoL has long expressed concerns over Parliament's ability to control executive action (see Democracy Denied? The urgent need to rebalance power between Parliament and the Executive), and it is therefore inevitable that the HoL should want to ensure that it feels that it can properly engage with regulators who will be exerting such strong influence over such an important sector of the UK's economy.
The key questions are: (1) what role will the HoL committee assume, and (2) to what extent will it overlap with the House of Commons Treasury Committee (including the Treasury Committee's new Financial Services Rules sub-committee)? The information from the HoL is that its committee will focus on themes. Again, this should be welcomed as it will mean that the evolution of ideas and the basis for regulators' actions should be exposed and publicly interrogated over time.
This approach ties to another of the FSMA 2023 reforms: publication by the regulators of performance data. A key feature of FSMA 2023 is that proper accountability requires transparency and the availability of information. In May 2023, HM Treasury published Financial Services Regulation: Measuring Success – Calls for Proposals, which sought ideas on the sort of metric which should be used to measure the regulators' performance. In December 2023, HM Treasury published its Response to the Call for Proposals and identified five areas where the regulators will now publish information on their performance:
These metrics will provide a rich source of information on performance trends and may allow the performance of the UK's FS regulator to be measured against its international counterparts. However, the challenge here for the HoL Committee (as well as the regulators and others using this information) is to ensure that their analysis does not focus solely on qualitative measures without considering quantitative improvements in regulator behaviour and the change that they can drive in the FS sector.
Alongside other information provision requirements (including the annual reports on how they are embedding the new competitiveness objective into their rule-making), the regulators will be publishing more information than ever before about their performance and the impact their actions have on the FS sector. A committee devoted to interrogating this information and committed to looking at trends is indeed welcome and will no doubt bring democratic oversight to the performance of the regulators at a time when the regulators assume more executive-type powers and responsibility than ever before. After all, with great power and responsibility comes great accountability, and increased scrutiny and therefore accountability is what the new HoL's Committee seems designed to achieve.
12.02.24
Dr. Adrian Yeo, Counsel, Dentons
26.04.24
22.04.24
24.04.24
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