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News and Views

New prime minister Liz Truss’s reported plans to merge UK financial regulators

Posted on 21 Sep 2022

writing on paper in a meeting

Tuesday 6 September saw the conservative leadership appoint Liz Truss to become Britain’s new prime minister. Following her appointment, Truss has promised to review the roles of and responsibilities of the UK’s key financial regulators. Notably, plans have been mooted to merge the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Payment Systems Regulator (PSR) into one regulatory organisation. This follows on from the new prime ministers campaign, which criticised the UK’s regulators for holding back economic growth with their overly cautious practices

The proposed merging comes nearly ten years after the separate regulators were formed when it was decided that the Financial Services Authority (FSA), which regulated the UK between 2001 and 2013, had multiple competing functions which could be separated across different organisations. At the time, one of the prevailing opinions was that the split was necessary to make the regulators more specialised and better equipped to regulate the financial sector. This followed assessments that the FSA’s light-touch approach had exacerbated the financial crisis.

Critics of Truss’ potential plans have argued that it could lead to unnecessary disruption, increased costs and could impact consumers negatively as one sole regulator struggles to cover all aspects of the financial sector effectively. Further, Bank of England Governor Andrew Bailey has warned that undermining regulatory independence could harm the City’s standing as a global centre. Additionally, it has been argued that any current concerns regarding the effectiveness of each regulator individually will not be solved, but rather, compounded by merging them together.

However, experts have argued over the likeliness of the merger taking place. With the government already facing large-scale economic issues such as the cost-of-living crisis, combined with the potential years it would take to introduce such a change, alongside the fact that there is no consensus within the financial sector that such a wholescale change is even required, all suggest that it is unlikely that such a proposal would develop the necessary political traction to be enacted.