Consultation on future financial services regulation closes

The government's consultation on the Financial Services Future Regulatory Framework Review closed in February 2022, according to the Finance Innovation Lab¹. The government described the review as a "once-in-a-generation opportunity" to establish an "approach to financial services regulation that is right for the UK"¹.

The consultation set out proposals for how financial services rules would be made after Brexit, including a flagship proposal on "international competitiveness"¹. The Finance Innovation Lab said this objective "could prove detrimental to financial stability and consumer protection" and risked undoing work to address systemic risk¹. The Lab distinguished this from a "competition" objective, which regulators already have and which it said can drive better outcomes for consumers through greater choice and lower prices¹.

The Lab cited comments from Bank of England figures. Andrew Bailey, now Governor of the Bank of England, said in 2019 when he was chief executive of the Financial Conduct Authority that the regulator "was required to consider the UK's competitiveness, and it didn't end well, for anyone"¹. Bank of England Deputy Governor Sir Jon Cunliffe said lessons about the importance of financial stability were "painful and hard won"¹.

A nationally representative UK-wide survey commissioned by the Lab in January found that 91% of respondents said international competitiveness should not be a top priority, and that the framework should instead focus on the future stability of the financial system, consumer protection and financial inclusion¹.

On Friday 4 February, the Lab co-signed a civil society joint statement with 36 organisations putting forward six recommendations to strengthen the government's proposals¹. The statement said: "As 37 civil society groups we welcome the opportunity to respond to @hmtreasury's Financial Services Future Regulatory Framework Review: a once in a generation chance to improve rules that support UK finance"¹.

The Lab said the government could give regulators a new objective to align the financial system with the 1.5 degree temperature goal of the Paris Agreement and the Glasgow Climate Pact, and could create a committee to scrutinise new regulation with public interest at its core¹. It said it had worked with organisations including Macmillan Cancer Support, Fair by Design, Greenpeace and the RSPB¹.

Why it matters for households

The review covers the rules that govern banks, insurers, lenders and investment firms, and the regulators that supervise them. The consultation outcome will shape how those rules are made and who holds power over them, which in turn affects the products households hold, from mortgages and savings to insurance and pensions¹.

The specific point of contention is whether regulators should be given a duty to promote the international competitiveness of the UK finance sector. The Lab argues that a focus on competitiveness before the 2007/08 financial crisis shifted attention away from the impact of the industry's actions on everyday citizens, and that the crisis cost the world economy $10 trillion and saw millions lose their savings, homes and jobs¹. It says the proposed objective is different from the competition objective regulators already hold¹.

The survey cited by the Lab found 91% of respondents wanted the framework to prioritise financial stability, consumer protection and financial inclusion rather than international competitiveness¹. The consultation also proposed changes to accountability arrangements for regulators¹.

What happens next

The consultation closed in February 2022¹. The government has not been reported as having published its response to the consultation, and no date for the next stage has been reported¹. The Finance Innovation Lab said its work on the issue would continue¹.

The Consultations and discussion papers: how new rules are made and how to respond guide explains how consultation responses feed into financial regulation in the UK, including HM Treasury's role in financial services law and the financial services rules after Brexit that replaced EU law.