Treasury committee argues against primary competitiveness objective for UK regulators
Committee's recommendation competitiveness be made a secondary objective for FCA and PRA will be a blow to the insurance industry, which has campaigned for a strong competitiveness objective
Primary objective for UK regulators risks weakening regulatory standards, while a secondary objective requires careful wording, influential group of MPs says
An influential group of MPs has urged the UK government not to make a competitiveness a “primary objective” of regulators.
In a new report, the Treasury select committee warned making competitiveness a primary objective risked weakening regulatory standards and “would undermine the regulators’ ability to deliver on their core functions”.
It recommended competitiveness be made a secondary objective for both the Financial Conduct Authority and the Prudential Regulation Authority.
The committee added the wording of such an objective, which is set to be included in the forthcoming Financial Services and Markets Bill, would be “crucial” to ensure regulatory standards were not diminished.
“Weakening standards could reduce the financial resilience of the UK’s financial system and undermine international confidence in that system and the firms within it,” it said.
The committee’s report will be a blow to the insurance industry, which has campaigned for a strong competitiveness objective.
Last month the London Market Group (LMG) called for the competitiveness objective for UK regulators to be given “teeth” as it set out a series of proposals to achieve this. The LMG said it was vital regulators are “held accountable” for delivering on the duty amid concerns it could be treated as a “tick-box exercise”.
The Association of British Insurers has said regulators need a “primary objective that supports economic growth to provide an explicit balance to their other statutory objectives”.
But while the Treasury committee was sympathetic to a focus on growth and competitiveness, it expressed concern this might lead to a loosening of regulatory standards. As such, it recommended a secondary objective to “to promote long-term economic growth”.
“The wording will be crucial: pursuing international competitiveness in the short term is unlikely to lead to economic growth or international competitiveness in the long term if it is achieved by weakening the UK’s strong regulatory standards,” the committee said in its first report on the future of financial services regulation.
“In designing the new secondary objective, there should also be some consideration for the ways in which financial services serve the ‘real economy’. The financial services industry can help deliver economic growth not simply by growing itself but also by facilitating economic growth by providing capital, credit, insurance and other services to firms in the ‘real economy’.
“The Treasury should continue to reject any calls for a growth and/or competitiveness objective to become a primary objective. This would increase any pressure on regulators to trade off competitiveness against resilience, and would undermine the regulators’ ability to deliver on their core functions. There is a danger that as memories of the financial crisis fade, its lessons are forgotten,” the report said.