Former business secretary Vince Cable has hit out at Liz Truss, warning that plans put forward by her campaign team to merge the City’s main regulators would be “dangerous”.
Her comments came after the front-runner in the Tory leadership race was said to be preparing for a sweeping overhaul of the responsibilities of financial regulators if she beats rival Rishi Sunak.
Citing campaign insiders, the Financial Times reported that Truss was considering merging the Financial Conduct Authority (FCA), which is generally responsible for overseeing company behavior and protecting consumers’ financial interests, with the Prudential Regulation Authority (PRA), which is part of the Bank of England and responsible for ensuring that banks and insurers are financially stable and do not put the wider economy at risk.
The merger could also include the Payment Systems Regulator (PSR), which oversees the networks that facilitate money transfers, contactless payments and ATMs across the UK.
The move would see the city’s watchdogs brought in less than a decade after they were set up in 2013 as part of a post-financial crisis review originally proposed by then chancellor George Osborne in 2010.
Cable said it would be a mistake to reverse those reforms.
“It’s been a decade and a half since the banking crisis that did so much damage to the British economy,” Cable told the Guardian. “A lot of time, manpower and money has gone into establishing a system of regulation to ensure that the financial sector does not impose serious systemic risk again.”
The PRA and FCA were created by splitting the now-defunct Financial Services Authority, which was criticized for failing to properly supervise banks in the run-up to the previous financial crisis and prevent scandals such as the mis-selling of mortgage protection insurance. payments
Cable said that while the Tory leadership contest had been full of “vague” promises that could fall by the wayside once the business of running government got down to business, “the proposals for financial regulation are instead more specific and more likely to be seen. daylight. That’s why they’re dangerous.”
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A banking board member also told The Guardian that the UK also risked “looking a bit silly internationally” by reverting to financial crisis-era reforms. “There’s a big risk that people will say, ‘Well, what are they doing here, you know?’ Can’t decide?
“Most people think we should focus on substance, not structure,” the board member said, adding that the City Council is unlikely to like more uncertainty after Brexit.
Any plan to reinstate supervisors is likely to suffer, just as the UK prepares for another economic downturn brought on by rising inflation. The decision could also face criticism if it results in job and cost cuts that further neutralize UK regulators. The PRA has about 1,350 workers, while the PSR operated with about 130 workers. FCA is the largest of the three with around 4,000 employees.
While tensions continue to rise between politicians and the Bank of England over the latter’s alleged inability to keep rising prices under control, some suggested Truss may also be responding to City frustrations with the FCA for alleged inefficiency and its willingness to intervene “aggressively”. ” on behalf of consumers.
But while Cable acknowledged that both the FCA and the PRA “have had their critics”, the financial system was much more stable and able to withstand “considerable stress” and that mis-selling scandals were “now very rare”.
Cable also warned that a review would lead to unnecessary disruption and costs, at a time when the FCA is already facing criticism for a lack of resources and its failure to protect consumers caught up in more recent scandals, including the collapse of Neil Woodford’s investment fund and mini-bond firm London Capital & Finance.
“The adage ‘if it ain’t broke, don’t fix it’ holds true here, especially since the machine was so difficult to assemble,” Cable said.
“Financial regulators already have a problem holding on to staff who are constantly trapped by companies that regulate themselves by offering better pay packages. The administrative upheaval doesn’t help,” he added.
The Bank of England and PSR declined to comment on reports of a potential merger, while the FCA said it could not comment.