Regulation post Covid: Part 2 (29) - 10/2: Does it help for regulators to have more objectives?

The consultation on the UK's future regulatory framework (FRF) closed yesterday, and the more I've thought about its proposed additions to the PRA and FCA's responsibilities - a secondary objective (on competitiveness & growth) and an expanded regulatory principle (on climate change & net zero) - the more doubtful I've become.

It's not that these aren't important issues - they are - or that the regulators shouldn't be considering them - they should. But adding them to the statutory framework might unnecessarily complicate regulators' choices, while making it harder to hold them to account.

When the consultation paper was published last November, I wrote that it was odd to see financial crime mentioned so much when it wasn't an objective, and that competitiveness and climate risk were already being given so much prominence by both regulators that it was arguable whether they needed a boost. However, the implicit message of the FRF is that regulators need to do more in these areas.

Moving on, events since the consultation paper was published, such as the FCA's press release on its 2021 highlights and the recent speech on its roles and priorities, have reinforced to me the tangled complexity of the FCA's remit. And the PRA's problems around Wyelands Bank have provided an example of how far its work can extend beyond normal capital and liquidity considerations. When the FRF comes in, with its new responsibilities and enhanced accountability, regulators may find they have less discretion than they do now, and may need to explain more clearly which combination of objectives and principles they were furthering by pursuing a particular course of action.

And taking a further step back, HM Treasury is also implying that these two additions are more important than other potential new objectives and principles. Financial crime and inclusion are two candidates that spring to mind and both are regularly cited as areas where regulators should be doing more. In future, it could become even harder to pay them enough attention.

HMT's view is that the idea of regulators needing to choose between higher standards and greater competitiveness is a "false choice". But it would also be wrong to imagine there won't be trade-offs and tension and, whatever its virtues (and there are many), the FRF isn't going to make regulators' work any easier.

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