I was delighted to participate in a videoblog, earlier this week with Hogan Lovells Financial Institutions Partner, Rachel Kent on The Future Regulatory Framework.
The issue of the day, how to establish an effective and efficient means of scrutinising our financial regulators.
It is self evident that major changes are underway, and required, as to how the UK makes financial Regulations. The Financial Services Bill is about to start Committee Stage in the House of Lords and the phase two consultation on the Financial Services Future Regulatory Framework Review was published in October last year.
As it is a necessity, it seems sensible to make it (as far as is possible) an opportunity. As we ‘import’, we should consider every opportunity to improve, not least in terms of competitiveness.
Andrew Bailey mentioned a few areas himself in his ‘Mansion House’ speech on the case for an open financial system last week.
When it comes to the question of scrutiny, it’s not whether we need more, or less. Rather, what are the optimum, inclusive arrangements best set to assist in the achievement of our national and international potential?
And, who should be doing all this ‘scrutiny’?: Parliament, the Treasury, the financial services industry, or should scrutiny be self selecting; left to the regulators themselves?
The debate, to date, has been somewhat characterised as a prescription versus principles approach. Probably best to take a step back from this somewhat constructed opposition. The first ‘P’ should always be that of purpose. Thus, the approach to scrutiny should mirror that of the regulators themselves and the regulations: purposed to achieve, just that, and no more. I guess you hear proportionate in all this too.
Any scrutiny must consider the three ‘C’s: capacity, consistency and coordination. Nail these and we’re making good progress.
Capacity: in terms of resource, experience, the people with the skills, with the time required;
Consistency: on it day in day out, not just popping up at the sight of significant regulator failure;
Coordination: within the sector, pan regulator and pan regulation. It is critical to understand and effectively scrutinise within the whole Government regulatory environment.
It’s pretty clear that everyone involved in Financial Services has a part to play in scrutiny and play it we must. Alongside this though, the Treasury (HMT) exercising their powers. Regulators raking their own backyard. The time has come for a new body, or brace of bodies, to be brought into being for the benefit of all. The scrutiny provided by various EU institutions is over – for us – a gap exists.
And the filler? Most energy currently seems to be behind a role for the Treasury Select Committee. There is a great deal to recommend this, although if we apply the first ‘C’ of capacity, there are clear challenges just on this measure. Perhaps a sub committee, potentially made up of members of both Houses of Parliament, could play a role with external expert advisors involved.
This is certainly the recommendation of a report out yesterday (18 February 2021) from the All Party Parliamentary Group on Financial Markets Services into The Role of Parliament in the Future Regulatory Framework for Financial Services. The sub committee would need to be ‘regularised’, on it always, not ad hoc or only when an issue rose up and caught the headlines. It would need to dial down the politics and remain firmly focussed on the non trivial, the non transient.
The sub committee and, in my view essential, alongside it an expert independent group must operate in real time, not rear view. Lessons learned are all well enough but where – not least with the right combination of talent and technology – the issue can be avoided in the first instance, it should and must be.
This would be transformational. A positive million miles on from the ‘annual report to Parliament via the relevant Minister approach.’
So, let’s do it. Scrutiny in the 21st century. Parliament partnering with the private and public sectors, academia, experts, a select committee sub committee and independent external body. Technology brought to benefit, an approach to do exactly what is required and no more.