Sunak soon to clash with City over new ministerial powers
Posted on 16 Nov 2022
The Treasury announced the intention to amend the financial services bill, which would effectively give the Treasury power over regulators. This change would allow them to direct regulators to ‘make, amend or revoke rules where there are matters of significant public interest’.
Why it matters
This changes the balance of power and the system of accountability which sees the Treasury kept in check by the City’s financial regulators. There are concerns that this would lead to a system where financial regulation is more susceptible to change by the political policy of whichever party is governing the country, which ultimately undermines the independence of the regulators.
Rishi Sunak is on a collision course with City of London regulators after the government confirmed he will indeed be continuing with a newly proposed “intervention power” which would enable Treasury ministers to overrule the watchdogs. This has been a source of concern for many of Britain’s most powerful regulators, including both the FCA and the Bank of England, the latter of which believes that this will undermine both the independence of all City regulators and the confidence that investors may have in London when considering it as a potential financial centre.
The Prime Minister originally brought up the idea while acting as chancellor, but has more recently indicated the wish to proceed. The Treasury stated: “We have confirmed our intention to bring forward an amendment to the financial services bill, to include an ‘intervention power’, that will enable the Treasury to direct a regulator to make, amend or revoke rules where there are matters of significant public interest.”
Sunak’s goal is to encourage more investment in London following Brexit, but the detail will be down to the current chancellor, Jeremy Hunt, who is now responsible for the delivery and implementation of this new policy. Both Sam Woods (chief of the Prudential Regulation Authority) and Nikhil Rathi (head of the Financial Conduct Authority) have voiced their concerns over the possible consequences that would follow if ministers were allowed the power to overrule regulators’ decisions.
Woods was quoted as saying: “Some might think that such a power would boost competitiveness… My view is that through time it would do precisely the opposite, by undermining our international credibility and creating a system in which financial regulation blew much more with the political wind — weaker regulation under some governments, harsher regulation under others.”
The Treasury has not specified a timeline for this policy, but has declared that the chancellor will soon take a final decision on the precise workings of this supposed power of intervention, and that the government would be tabling an amendment to the financial services bill as it reaches the committee stage while it passes through parliament.
Who it affects
This affects those who work in financial regulation, particularly those in the City who will be working in proximity with the Treasury.