The House of Commons Treasury Committee has published a report on the Future of Financial Services Regulation setting out its view on the priorities for regulatory change in the U.K. now that the U.K. has left the EU. The report considers some of HM Treasury's proposals in the Future Regulatory Framework Review and presents its related recommendations. It also makes specific recommendations for the Financial Conduct Authority and the Prudential Regulation Authority.

In the Future Regulatory Framework Review, HM Treasury is proposing to introduce a new growth and international competitiveness objective as a secondary objective for both the FCA and PRA and to amend the existing regulatory principles to make it clear that such growth should occur in a sustainable manner. The Treasury Committee firmly believes that HM Treasury should continue to resist calls for these to be primary objectives. Instead, it recommends that both the FCA and PRA should have a new secondary objective to promote long-term economic growth. In addition, the Committee's view is that the FCA's objectives should not be amended to take account of financial inclusion. However, it should be obliged to have regard for financial inclusion when making rules.

HM Treasury is also proposing to delegate to the U.K. regulators new powers to replace direct regulatory requirements currently set in retained EU law with rulemaking by the U.K. regulators. To provide industry with an opportunity to plan for changes, the Treasury Committee suggests that HM Treasury and the regulators publish a forward-looking schedule showing when the EU financial regulation would move to the regulator's rulebooks, including timelines for consultations.

Regarding the plethora of measures proposed by HM Treasury to ensure accountability of the regulators and scrutiny by and engagement with Parliament, HM Treasury and other stakeholders, the Committee expresses concern that the collective impact of the proposals has not been given due consideration. Although the Committee appears to agree with the individual proposals, it is concerned that the overall new framework could impact the regulator's resources and ability to act quickly. Furthermore, the Committee warns that Treasury should be careful in using its proposed power to require regulators to review their rules and should not use it to implicitly require a consideration of general "public interest" for rulemaking, which could potentially diminish the regulator's independence. The Committee advises that it will be attuned to any attempts by HM Treasury to pressure the regulators into weakening regulatory standards.

Noting evidence that the FCA is not meeting is statutory or voluntary service standards, including in making decisions on firm authorizations, the Committee advises that, when the FCA next publishes an update on its service standard, the regulator should inform the Committee of where is still not meeting its deadlines and provide a strategy for addressing the issue.

The Committee suggests that the PRA should consider whether more could be done to reduce the advantages for large banks and insurers that model their own capital requirements so as to assess whether the firms are showing the levels of risk and to reduce the barriers facing smaller firms. The Committee intends to analyse the PRA's proposals for a strong and simple prudential framework.

The Committee also encourages the FCA to take bold approaches when considering the potential prospects for larger firms to experiment (in a controlled manner) with innovative products, including suggesting that firms could set aside capital to compensate limited-use customers if an innovative product did not achieve the desired outcomes. The Committee states that it will be conducting work on how the challenges relating to new payments, such as crypto-assets, stablecoins and central bank digital currencies, are being managed.