Liz Truss, the frontrunner on the road to Britain’s next prime minister, wants to examine the role of the country’s three financial regulators as part of a review, a source close to her leadership campaign said on Thursday.
Assuming she wins the competition, Truss is expected to investigate the role of the Financial Conduct Authority (FCA), the Bank of England’s Prudential Regulation Authority (PRA) and the Payment Systems Regulator (PSR).
“No decisions have been made about the future of regulators,” the source said, asking not to be named. “She is aware that there is not enough focus on economic growth.”
The FCA, Bank of England and PSR all declined to comment. The Financial Times first reported the story.
Weakening UK regulators would undermine financial services, the Bank of England warns
Truss, Foreign Secretary and former Finance Minister Rishi Sunak are in a Conservative Party run-off election to replace Boris Johnson as Prime Minister, with the result to be announced on September 5.
She has pledged to cut taxes to soften the impact of rising prices on households.
Truss and her supporters have suggested that the government should play a bigger role in how the works if inflation rises above 10%, five times the BoE’s target level.
BoE Governor Andrew Bailey said independent regulators are part of London’s reputation as a global financial hub.
The FCA, under its chief executive Nikhil Rathi, is undergoing an internal overhaul following its botched handling of London Capital & Finance, an investment firm that collapsed, leaving taxpayers with the compensation bill.
The PRA is under pressure from insurers to allow them to invest more in infrastructure as part of a post-Brexit reform of Solvency II capital rules adopted by the European Union.
A Financial Services and Markets Bill tabled in Parliament last month gives the FCA and PRA a new secondary objective to support economic growth and the competitiveness of the financial sector, but some companies say it doesn’t go far enough.
The PSR, which has been in operation since 2015, is under pressure from lawmakers to resist moves by Visa and Mastercard to impose fees on users of their payment networks.
Britain previously had a key financial regulator, the Financial Services Authority, which was abolished after undercapitalized banks had to be bailed out by taxpayers in the 2007-09 global financial crisis.
This ‘twin peaks’ approach led to the creation of the FCA to regulate behaviour, and the PRA and BoE to ensure banks and insurers have sufficient capital.
The merging of regulators would potentially be a long and difficult undertaking.
“What possible benefit the latter would have for anyone is beyond me,” said Simon Gleeson, partner at law firm Clifford Chance.
Rupert Harrison, BlackRock’s portfolio manager, said the need to compartmentalize conduct and regulatory oversight was a key lesson from the financial crisis and is being applied globally.
“Also, you get in trouble when the lender of last resort isn’t familiar with balance sheets because they’re the regulator,” Harrison said in a tweet.
(Reporting by Elizabeth Piper and Huw Jones, editing by Barbara Lewis)
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