Huge potential shakeup could "ignore the lessons of the financial crisis"
The frontrunner to be the next UK Prime Minister has put the City of London’s top regulators in her crosshairs, promising an immediate review of their roles and responsibilities if she wins, according to campaign insiders.
Foreign Secretary Liz Truss, who is 32 points ahead of former chancellor Rishi Sunak in the latest poll of Conservative party members, is looking at plans to merge the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Payments System Regulator (PSR) into a new body, according to a report by the Financial Times.
A financial services executive told the Financial Times that Truss was critical of the FCA, which faced its first industrial action this year under its new chief executive, Nikhil Rathi. The executive said Truss wanted to overhaul financial regulation as part of “a wider war on technocrats” and civil servants.
While Truss’s campaign would not comment on the proposals, one insider told the Financial Times that she would review the regulators.
“No decisions have been made on the future of regulators,” the campaign official said. “Liz will look at their role as part of a review. She’s clear that there has not been enough focus on economic growth.”
Sunak’s campaign slammed the proposals for “ignoring the lessons of the financial crisis.” One Sunak campaign official accused Truss of “recreating [former Prime Minister] Gordon Brown’s failed regulatory model.”
The FCA has faced sharp criticism for its failings, including inadequately overseeing collapsed minibond seller London Capital & Finance, the Financial Times reported. The UK’s largest financial regulator with a staff of about 4,000, the FCA oversees the conduct of major banks and insurers, as well as the conduct and financial stability of around 60,000 financial services companies.
The PRA sits within the Bank of England. Its staff of 1,350 is responsible for overseeing the financial stability of the largest banks and insurers operating in the UK. The PSR, with 130 employees, operates as a subsidiary of the FSA.
The proposal would represent the largest shakeup of the UK’s financial regulators in more than a decade, the Financial Times reported. Former chancellor George Osborne spearheaded the separation of the UK’s prudential and conduct regulator in 2010, disbanding the Financial Services Authority in the wake of the Global Financial Crisis. That regulator’s functions were split between the PRA and the FCA, both created in 2013, and the PSR, which was formed two years later.
Truss has made structural reform a key plank in her platform to be Prime Minister. She has promised to review the BoE’s mandate, with allies saying the bank has been too slow in raising rates and tackling inflation, the Financial Times reported. Truss has insisted that the BoE should remain independent.
Truss has also pledged to shake up the Treasury, according to the Financial Times. She has refused to rule out splitting up the Treasury, although she told allies it would be “mad” to do so during an economic crisis.
