Government tries to tame the regulators
The new Regulators' Code, first published by the aptly named Better Regulation Delivery Office in July 2013, came into statutory force on April 6.
It may be coincidence, but this is merely days after the FCA was lambasted for the fiasco that surrounded the announcement of its investigation into 'zombie' insurance funds, including, tellingly, by the Chancellor of the Exchequer. Given that the Better Regulation Delivery Office was set up as an independent unit in the Department for Business Innovation and Skills (BIS) to drive forward the Coalition's focus on cutting red tape (point 2 of the Coalition Agreement) the timing of this document seems like a sharp reminder to the FCA and PRA as to the true focus of the Government's agenda: economic growth.
The new Code, supported by a FAQs document, replaces the Regulators' Compliance Code. It was brought into force using the powers granted by s.23 Legislative and Regulatory Reform Act 2006 (the LRRA). The FCA, the PRA, the new CMA, the Pensions Regulator and HMRC, in relation to its AML functions, are all covered by the Code (as set out in the Legislative and Regulatory Reform (Regulatory Functions) Order 2007) (along with more esoteric regulators such as the Gangmasters Licencing Authority and the Hearing Aid Council).
Although the Code itself is only four pages long, with only 6 principles, regulators, including crucially the FCA and the PRA, are statutorily obliged to "have regard to the Code when developing policies and operational procedures that guide their regulatory activities" and "Regulators must equally have regard to the Code when setting standards or giving guidance which will guide the regulatory activities of other regulators". This is very powerful given that principle 1 of the Code states clearly that "Regulators should carry out their activities in a way that supports those they regulate to comply and grow":
"When designing and reviewing policies, operational procedures and practices, regulators should consider how they might support or enable economic growth for compliant businesses and other regulated entities, for example, by considering how they can best:
- understand and minimise negative economic impacts of their regulatory activities;
- minimising the costs of compliance for those they regulate;
- improve confidence in compliance for those they regulate, by providing greater certainty; and
- encourage and promote compliance."
The statutory status of the Code means that the FCA and PRA must comply with its provisions. Therefore, any FCA or PRA policies and operational procedures which do not seem to have a minimal negative economic impact or minimise the cost of compliance raise the prospect of judicial review by industry and industry bodies. Firms are positively encouraged in the introduction to the code by Michael Fallon MP, a minister in BIS and influential power-broker in the Conservative Party, to "challenge" the FCA and PRA if the principles in the Code are "not being fulfilled".
The LRRA also grants (at section 1) a very wide power to Government Ministers to make any provision whose purpose is "removing or reducing any burden, or the overall burdens, resulting directly or indirectly for any person from any legislation", where 'burden' means "financial cost", "administrative inconvenience", "obstacle to efficiency, productivity or profitability", or "a sanction, criminal or otherwise, which affects the carrying on of any lawful activity". Many of the powers of the FCA and PRA stem from Orders of the Treasury, and the LRRA clearly indicates that while the Treasury may grant powers with one hand, if these are misused by the FCA and PRA, then the Treasury may with the other, by reference to the regulatory principles in the LRRA, take these powers away.
The UK economy, indeed the global economy as a whole, seems to be the stage for a fierce battle between those who see citizens as consumers who must be protected even if this diminishes economic development and those who see citizens as employees and investors who need jobs and growth.
The real hope for the latter camp, ie those who see a dynamic, innovative financial services industry at the core of the UK economy, is that the Government seems to be on their side.