This week is an important juncture in UK politics: not only is Parliament returning and a new Prime Minister starting, but it will also witness the second reading of the Financial Services and Markets Bill in the House of Commons. This bill will establish the trajectory for the UK’s large financial services sector for the foreseeable future, but new polling reveals that the UK public are opposed to the deregulation of the financial sector that this bill entails.
Alongside a major delegation of powers to regulators – specifically the Financial Conduct Authority and the Prudential Regulation Authority – the government proposes using the bill to give regulators a statutory objective to promote the ‘international competitiveness’ of the UK financial services industry. This refers to the ability of UK firms to compete for business overseas. (‘Competitiveness’ is distinct from competition; regulators already have an objective to promote competition between firms.)
As the Lab and others have argued, placing a duty on financial regulators to promote the international competitiveness of the finance industry would require them to act as cheerleaders for the big City institutions, and risks eroding their ability to act independently in the public interest. A duty to promote the competitiveness of industry could put UK regulators in a ‘race to the bottom’ with regulators globally to water-down standards.
Just a decade ago, parliament removed competitiveness from the mandate of the financial regulator. In 2010, HM Treasury identified that one of the reasons for regulatory failure leading up to the global financial crisis of 2007/08 was “excessive concern for competitiveness”. As the Governor of the Bank of England, Andrew Bailey, said in 2019, the regulator “was required to consider the UK’s competitiveness, and it didn’t end well, for anyone”. The crash saw millions lose their savings, homes, businesses and jobs, and cost the UK an estimated £1.8 trillion in lost GDP.
Ultimately, an international competitiveness objective risks putting undue pressure on the regulators to water-down standards or remove regulations altogether.
New polling suggests that the British public overwhelmingly agrees that deregulation is not in their interest, and they share the Lab’s concern regarding any future financial crisis that might result from deregulation. A representative sample was asked about their views on the appropriate level of regulation for the financial services sector.
- Nearly seven in ten (66%) believe that the existing level of financial services regulation needs to be increased or is about right (with most – over two thirds of these people – thinking that more regulation is required).
- Fewer than one in ten Brits (9%) believe that banks and other financial institutions need less regulation. Appetite for deregulation is even lower amongst people who:
- voted Conservative in the 2019 General Election (just 8% support deregulation)
- voted Leave in the Brexit referendum (just one in 20 – 5% – support deregulation)
- live in the North of England (the so-called ‘Red Wall’) (just 6% support deregulation).
- Over seven in ten people (72%) would be fairly or very worried about their personal financial position should there be another financial crash, similar to the one experienced in 2007/8. Just 2% of the population are not worried at all. The greatest concerns are held by those aged 50-64 years old (78%).
The government’s proposed financial reforms require regulators to cheerlead for the sector when they should be independent referees making decisions in the public interest. Our polling reveals that the public are concerned about the potential outcomes of such a move.
In February the Lab and 36 other public interest groups published a joint statement that makes key recommendations to strengthen the government’s proposals. To ensure that regulators act in the public interest, we are calling for them to be given new duties to 1) align the financial system with the 1.5 degrees goals of the Paris Agreement, and 2) promote financial inclusion. We also call for a step-change in public accountability over future rule-making. This could be achieved through robust parliamentary scrutiny, making lobbying transparent, and addressing the gross imbalance in stakeholder engagement with financial regulation by public interest groups (including consumer groups, civil society organisations, and groups representing SMEs) versus industry representatives.
We are now working with civil society organisations in the Lab’s community to make sure that the voice for social and environmental justice is heard loud and clear and results in improvements to the bill as it passes through parliament.
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