Call for ‘root-and-branch review’ of financial regulation - FT Adviser

John McDonnell is chair of the APPG on Investment Fraud and Fairer Financial Services

A 250-page report has called for “urgent” structural reform of regulation, saying it is not currently fit for purpose.

The All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services claimed the government’s new “deregulate for growth” agenda risks weakening consumer protections.

Published today (March 16), the report, ‘Why Our Financial Conduct Regulation Needs Reforming’, claimed the Financial Conduct Authority is unaccountable as an arms-length body.

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APPG chair and former shadow chancellor, John McDonnell MP, said: “Scandal after scandal has been treated as an isolated event, yet the same warning signs are ignored, the same regulatory failures occur, and the same devastating consequences are suffered by ordinary people.

“That is not coincidence — it is the product of structural weaknesses in the system parliament created.

“The evidence presented here makes the case for a Royal Commission, or something similar, that can undertake a genuine root-and-branch review of financial regulation.”

The report claimed there is a “recurring pattern” in the UK that financial scandals are “not accidental or isolated” but instead reveal deeper structural problems in the way financial regulation operates.

It concluded that the root cause of the problem is that the Financial Conduct Authority “has too much power and insufficient accountability”.

The report highlights several systemic issues that could be undermining regulatory effectiveness, including what is has called “The Unholy Trinity”.

Firstly there is the ‘revolving door problem’ which is the movement of personnel between regulators.

Then comes conflict within regulatory decision-making structures; and lastly the concern that regulators have become overly influenced by the sectors they regulate.

The report also raises concerns about the marginalisation of consumer voices in rule-making processes.

Sarah Bool MP, vice chair of the APPG, added: “This report highlights serious concerns that weakening consumer protections in the pursuit of growth could ultimately undermine the confidence on which successful markets depend.

“Trust is the foundation of a thriving financial sector, and once that trust is lost it is extremely difficult to rebuild.”

In response to the report, the FCA said consumer duty regulations have helped in this area.

An FCA spokesperson said: “We’ve learned from the past and transformed how we deliver for consumers, markets and the wider economy.

“Our consumer duty is setting a higher standard of care, we’ve improved how we identify issues, strengthened our supervision and we’re delivering more criminal prosecutions than ever.

“Support for growth and innovation would be helped by an open discussion with Parliament and government on a collective risk appetite.”

Today, the APPG will hold a summit named ‘Protecting Consumer Protections: For the Sake of Society and The City’.

This will make the case against less regulation for stronger consumer protections.

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