The governor of the Bank of England opposes plans drawn up by the Treasury that would allow ministers to overturn financial controls in key areas of city regulation.
Sky News has learned that Andrew Bailey has expressed concern over the so-called “call power” that will be included in the Financial Services and Markets Act, which is due to be introduced this year.
The clause, which is designed only to be invoked in circumstances where ministers believe it would be in the British national interest to intervene, has highlighted tensions between the Treasury and the Bank, according to a city executive who has been briefed on the subject.
Mr Bailey is said to believe that the existence of the convening power undermines perceptions of the Bank’s independence, although the bill would have no bearing on its autonomy in setting interest rates.
An ally of the governor said the problem could still be resolved amicably, but that Mr Bailey might need “more reassurance” about the circumstances under which the new mechanism would be activated.
The new power to override the Prudential Regulatory Authority (PRA) would remain in reserve, similar to the Treasury’s ability to “electrify” the fence that was introduced to safeguard depositors of major UK retail banks in 2019.
It would rarely, if ever, be used, according to one source.
If invoked, any attempt to overturn regulators ’decisions is expected to need parliamentary approval, they added.
An example of where the new convening power could be invoked would be in relation to the reforms of the Solvency-II insurance sector that the Treasury is preparing, but which are finding some resistance from the PRA.
Ministers have pledged that the review will free up tens of billions of pounds for insurers to invest in UK infrastructure projects.
During a meeting this week, however, insurance executives told Rishi Sunak, the chancellor, and John Glen, the city minister, that they were concerned about the PRA’s attitude towards reforms.
The Financial Times later reported that Boris Johnson had expressed a similar concern.
Sunak is expected to explain the details of the new bill in his annual Mansion House speech later this month, as the Treasury intends to speed up changes to city regulations that could generate a “dividend” after the Brexit.
Presented in the Queen’s speech in May, the most prominent components of the bill acclaimed by the Treasury involved the commitment to preserve access to cash; repeal EU financial services law and replace it with a UK-focused approach; and updating the objectives of industry regulators, including the Financial Conduct Authority, to include economic growth and international competitiveness.
Amendments to watchdog targets have provoked opposition from critics who argue that the focus on competitiveness runs the risk of undermining the primary duty to promote financial stability.
The bill also includes reforms to the regulation of UK capital markets to promote investment, as well as new protections for consumers who become victims of scams.
“We are reforming our financial services sector now that we have left the EU to ensure that it acts in the interests of communities and citizens, creating jobs, supporting businesses and driving growth across the UK,” said Glen when the bill was introduced. in May.
However, there are no immediate plans to remove EU-wide aspects of the legislation, such as the cap on bonuses, as the cost-of-living crisis makes it politically unpleasant to remove restrictions on bankers’ pay. .
The Bank of England declined to comment on Saturday, while the Treasury said: “As announced in the Queen’s speech, the next financial markets and services bill will improve our position as a world leader. in financial services, it will reap the benefits of Brexit by cutting EU bureaucratic paperwork and promoting a competitive market that stimulates investment for people and businesses.
“The bill will be introduced when parliamentary time allows.”