Regulator action

Truss ruffles City with watchdogs merger plan

Liz Truss
Liz Truss: war on technocrats

Tory leadership frontrunner Liz Truss’s plans to merge three City regulators has created concern that it will stoke some previous shortcomings in the financial services sector.

Ms Truss wants to merge the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and Payments System Regulator (PSR) into a single body.

Her plans comes as part of a “wider war on technocrats,” according to the Financial Times and follow the FCA coming under scrutiny over its handling of the London Capital & Finance and Blackmore Bonds scandals that saw investors lose millions.

The PRA, a division of the Bank of England, regulates the UK’s largest banks and insurers, while the PSR is a subsidiary of the FCA acting as the world’s first payments system regulator.

Simon Morris, a financial services partner at international law firm CMS, said: “Crashing together the PRA and the FCA would massively distract management focus and disrupt day-to-day operations. This is the last thing industry wants or that consumers would welcome at a time of global instability.”

Mark Bishop, a campaigner for regulatory reform, said: “We tried the ‘omni-regulator’ option before and it led to the global financial crisis. Hence the move to the twin peaks model we have now. This recognises that there are tensions between stability and conduct regulation.

Cheesegrater London
Some in the City warn against undoing measures to safeguard consumers (pic: Terry Murden)

“Truss appears to have noticed there’s a problem with the FCA. The solution is surely to fix the FCA, not to recreate the problem [the FCA] was designed to fix.”

Tom Selby, head of retirement policy at AJ Bell, said: “When applied effectively, regulation can provide vital protection for savers and investors. The FCA, PRA and PSR all play slightly different roles in the UK regulatory system, so it will be important any merger maintains the key protections each individual regulator is currently responsible for.

“The former city regulator, the Financial Services Authority (FSA), was carved up in the aftermath of the financial crisis. Reversing that move to bring regulatory powers under one roof again would be a major undertaking.

“There is arguably a stronger case for folding at least some of the responsibilities of The Pensions Regulator (TPR) into the FCA. From an end saver’s perspective, there is often very little difference between a trust-based pension, which is regulated by TPR, and a contract-based pension, regulated by the FCA.

“While TPR and the FCA often work together, they continue to set rules independently. Having two regulators for what is essentially the same product carries the constant risk of inefficiency, with rules either duplicated or applied in different ways.

“This can also lead to wasted resources and confusion, particularly for businesses which operate in both the trust and contract-based pensions worlds. At the very least, a review of whether TPR’s regulation of trust-based defined contribution (DC) schemes could be carried out more effectively by the FCA would seem to have some merit.”

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