Financial Services and Markets Bill: who guards the guards?
As mentioned in previous postings on the Financial Services and Markets Bill, the role of the regulators, their accountability, their scrutiny is more than a point for debate. It is critical to the very success of our financial services, and through that, so much potential social and broader good.
Who guards the guards? Or quis custodiet ipsos custodes? refers to a situation in which a body, in this case the FCA, despite having power over others, are not themselves subject to correct level of scrutiny.
I think that the Bill as currently drafted does not deliver in this area and have introduced four amendments to address the problem. All four of these suggestions have been drafted with the intention of improving transparency, accountability, efficiency, and proportionality for the regulators.
My first amendment (115) would require both regulators to publish regular reports to Parliament on their regulatory performance for new applicants for regulation. Next, amendment 116, would require the FCA to publish regular reports to Parliament on their regulatory performance for existing authorised entities and persons.
Amendment 196 would add to the regulators’ authorisation KPIs within the Financial Services and Markets Act 2000 and require them to publish monitoring data related to the determination of authorisations. Finally, amendment 74 would amend the existing regulatory principle for both regulators and require that the nature of and risk to the consumer, and the service or product being delivered, must be considered when imposing a new burden or restriction.
The full text of all four amendments:
115
“Requirement to publish regulatory performance information on new authorisations
(1) The FCA and PRA must each lay before each House of Parliament a report on their regulatory performance as soon as practicable after the end of— (a) the period of six months beginning with the day on which this Act is passed, and (b) subsequently, each quarter.
(2) The reports must include analysis and data on the following— (a) the total number of new applications for authorisation made to each regulator each year, and a breakdown by authorisation type; (b) the rates of approval for applications for authorisation by each regulator and a breakdown by authorisation type; (c) the average length of time taken from application to final authorisation decision by each regulator; (d) an estimate of the time and costs required by an applicant to comply with information requirements for authorisation; (e) such other matters as the Treasury may from time to time direct.”
116
“Requirement to publish regulatory performance information on authorised firms
(1) The FCA must lay before each House of Parliament a report on its regulatory performance as soon as practicable after the end of— (a) the period of 6 months beginning with the day on which this Act is passed, and (b) subsequently, each quarter.
(2) The report must include the average length of time taken from application to final decision for each of the following regulatory responsibilities— (a) approved persons; (b) change in control; (c) variation of permission; (d) waivers and modifications that alter compliance obligations.”
196
“Determination of applications
(1) FSMA 2000 is amended as follows.
(2) In section 61 (determination of applications), after subsection (2) insert—
“(2ZA) In determining the application, the regulator must— (a) assign a new application to a case handler within 5 working days of the application being made, (b) complete an initial application review within 10 working days of allocation to a case handler, and (c) allow a period of no more than 15 working days from receiving the application, to make requests for additional information. (2ZB) The regulators must publish monitoring data on an annual basis regarding the following— (a) the proportion of cases which required escalation to sponsoring firms, including summary trend data on the reasons for escalation, (b) the average time it takes to assign a case handler, and (c) the average number of days it takes to complete an application in full.””
74
“Regulatory principles to be applied by both regulators: proportionality principle In section 3B(1) of FSMA 2000 (regulatory principles to be applied by both regulators), in paragraph (b), for the words from “considered” to the end of that paragraph substitute “taking into consideration the nature of the service or product being delivered, the nature of risk to the consumer, whether the cost of implementation is proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness;”.”
Responding for the Government, Minister Penn said:
“The Government agree that it is vital to have appropriate public metrics to ensure that the operationally independent regulators can be held to account for all aspects of their performance, including against their new growth and competitiveness objectives.
“FSMA establishes multiple channels for this, including annual reports. The regulators also voluntarily publish a range of data—for example, on operating service metrics.”
I note that again the word ‘voluntary’ pops up as it has throughout so many of our debates – and as I have said before the problem with voluntary is that it is neither mandatory nor statutory and thus never certain.
Minister Penn went on to say that the point was understood and that:
“the Government recognised the need to go further in requiring the regulators to publish information, which is why we added Clause 37. It provides an additional mechanism for the Treasury to require the regulators to publish information, including performance data, on a more regular basis, where the Treasury considers it necessary to support scrutiny of performance.
“It is impossible to predict how the power in Clause 37 requiring regulators to publish information on a more regular basis may be used. The Treasury will work with stakeholders, industry, consumers and Parliament to understand the evidence base for whether it is in the public interest to exercise this power and the kinds of situations in which it would be desirable to do so.”
The Minister concluded on a somewhat positive note, reiterating that although they have given this “quite a lot of consideration” already they “are open to further thoughts”.
To conclude, at this halfway point in Committee Stage at least, we have in front of us a Bill with so much potential. Potential for folks and firms alike if we get it right. As is often the case, at this stage of the legislative process, there is much to be done, amended, improved. Not least, in terms of regulation and the regulators there are questions around accountability, cost, and the competitiveness objective.
If we are to gain all of the opportunities and potential benefits of our financial services sector, the new technologies we have in our human hands, all connected through the power and certain positive force of the common law of England and Wales then we have to make this a Bill that delivers on its promise. As always, I welcome your thoughts on how we can improve the Bill further.
Read more about my proposals regarding regulation and the regulators on my blog.