Rishi Sunak is on a collision course with City of London regulators after the government confirmed he will press ahead with a new “intervention power” to enable Treasury ministers to overrule the watchdogs.
The proposed new power has alarmed Britain’s most powerful regulators, including at the Bank of England, who believe it will undermine their independence and weaken confidence in London as a financial centre.
But the prime minister, who originally outlined the power while chancellor, has indicated to the Treasury that he wants to proceed — in spite of increasingly vocal warnings that the proposal could damage the City.
The Treasury said: “We have confirmed our intention to bring forward an amendment to the financial services bill, to include an ‘intervention power’, that will enable the Treasury to direct a regulator to make, amend or revoke rules where there are matters of significant public interest.”
Sunak while chancellor argued that ministers should be able to direct regulators in rare circumstances.
He wants to balance a commitment to financial stability and independent regulation with his desire to make the City a post-Brexit engine for higher economic growth.
Responsibility for delivering the policy now lies with Jeremy Hunt, the chancellor, and Andrew Griffith, who was reappointed as City minister last week.
Sam Woods, chief executive of the Prudential Regulation Authority, and Nikhil Rathi, head of the Financial Conduct Authority, warned about the consequences of ministers having the ability to override regulators’ decisions at a gathering of City leaders last week.
Referring to the intervention power, Woods said: “Some might think that such a power would boost competitiveness.
“My view is that through time it would do precisely the opposite, by undermining our international credibility and creating a system in which financial regulation blew much more with the political wind — weaker regulation under some governments, harsher regulation under others.”
His stance was echoed by Rathi, who said it was “vital” that the FCA’s “independence and agility at speed [was] not undermined by any proposed call-in power”.
The Treasury said the chancellor would take a final decision on the precise mechanics of the intervention power and the government would table an amendment to the financial services bill during the committee stage of its passage through parliament.
The bill also introduces a new “secondary” objective for the PRA and the FCA to support growth and competitiveness.
Recently tensions have emerged between the Treasury and the BoE over reforms to the Solvency II rules that govern the insurance sector. Insurers have long argued the rules require them to hold too much capital.
Ministers want the rules loosened to increase insurers’ investments in infrastructure, while regulators are focused on maintaining strong capital buffers at the regulated companies, as well preserving financial stability.