City minister warns UK regulators to improve transparency

The City minister has warned Britain’s financial services regulators to raise their game ahead of the launch of wide-ranging reforms designed to create a capital markets powerhouse in London in the wake of Brexit.

In identically worded letters to the chief executives of the Financial Conduct Authority, the financial regulator, and the Prudential Regulation Authority, the Bank of England’s regulatory arm, Andrew Griffith stressed that the government wanted “world-leading . . . operational effectiveness” from its watchdogs.

“I would welcome an update on your plans to increase transparency on . . . [your] efforts to be world-leading in terms of operational effectiveness,” he added.

Treasury officials said there was dissatisfaction with the speed and delivery of the financial services regulators among City executives, which had led the minster to make an unusual intervention ahead of the unveiling of the government’s reforms due this week.

Griffith told the Financial Times that government efforts to boost the City of London also involved ensuring existing rules were being applied in a “timely and effective” manner.

The warning shot to the FCA and PRA comes as Jeremy Hunt, chancellor, prepares to reveal on Friday a 30-point plan to boost the British financial sector in the wake of Brexit.

Hunt has dubbed the package the “Edinburgh Reforms” after the Scottish capital where he will make the announcement, eschewing the “Big Bang 2.0” terminology adopted by his predecessor Kwasi Kwarteng.

The original 1986 “Big Bang” financial services deregulation passed by Margaret Thatcher’s government was far-reaching and transformational, whereas Hunt’s package is expected to be more modest.

Hunt’s allies said the “Edinburgh Reforms” designation was intended to serve as a reminder that financial services are a vital UK industry with vibrant centres beyond the City of London.

“We want to use smart, sensible, common sense regulatory reform to spur investment from every corner of the world into UK plc because that’s our core,” John Glen, chief secretary to the Treasury, told a London conference on Tuesday, pointing to the need for a “tailored and dynamic regime” to benefit the UK economy and industry.

“I would also like to take this opportunity today to put to bed once and for all the idea that this is deregulation for deregulation’s sake,” he added. “And I say unequivocally there is no race to the bottom.”

The proposals are expected to include a review of Mifid II, the EU’s flagship financial markets legislation, which set tough and often prescriptive rules to improve markets after the 2008 crisis.

City executives have complained that sections of Mifid II have had only marginal benefit and created layers of red tape. In particular, critics have said the regime has stopped banks and brokers from publishing research on companies in the UK after “unbundling” these costs from investment and brokerage services.

This has starved many smaller firms in particular from the sort of in-depth research coverage that attracts investors.

Some of the reforms, including changing the EU’s Solvency II regime for insurers and the Mifid II review — would not have been possible on a unilateral basis while Britain was in the EU.

However many others, such as changing the “ringfencing” regime for investment banking operations, could have been carried out by Britain irrespective of Brexit.

In response to Griffith, the FCA and PRA chief executives both said they would take steps to improve transparency around their operational effectiveness. They said they would publish more frequent data on the length of time it took to process authorisation applications, a bugbear for the industry.

Both agencies declined to comment beyond their chief executive’s responses, but a person familiar with the FCA’s position denied that there were any “tensions” over operational efficiency, since the FCA has publicly said it has improvements to make.