A radical financial services bill authored by former chancellor and Tory leadership candidate Rishi Sunak will be published on Wednesday. It will pave the way for ministers to be able to “call out” regulatory decisions made by the Cabinet that they don’t like. Nadhim Zahawi, who succeeded Sunak as chancellor this month, will back Sunak’s plan for a more “growth-focused” approach to city regulation in his Mansion House speech on Tuesday. Boris Johnson, the outgoing prime minister, is said by allies to be particularly “impatient” with regulators after they resisted reforms to the EU’s so-called “Solvency II” regime, which aims to loosen capital rules for insurers to release of cash for infrastructure projects. Regulatory independence is important because much of our international standing depends on it Pro-Brexit politicians, including Johnson, Sunak and Zahawi, believe lifting EU rules governing the city will create a “nimble” new regime and unlock capital for investment. But Andrew Bailey, governor of the BoE, wants to make sure it does not increase risk. Sunak laid out his approach in a “Brexit manifesto”, talking about a “Big Bang 2.0” that would “help investors and insurers put money into assets like infrastructure that stimulate growth and reap long-term benefits”. . He said: “We will finish the job of ending the EU system where ultimate power rests with faceless regulators and give that power to our sovereign parliament.” Bailey resists what he sees as ministerial interference. “Bailey is not very happy,” admitted a senior government official involved in shaping the new regime. Bailey this month told MPs on the finance committee that he opposed any changes that would undermine the stability of financial regulation. “Regulatory independence is important because much of our international standing depends on it,” he said. Regulators have been given a new secondary objective of promoting “growth and competitiveness”, while ensuring the safety of companies and maintaining financial stability. But it is the ‘call in’ powers in the Financial Services Bill that have caused the BoE the biggest worry — Bailey fears regulators will constantly have politicians looking over their shoulders. A senior official close to the tense negotiations between the Treasury and the BoE said the “call in” powers would only be used “in exceptional circumstances”. Nadhim Zahawi will back Rishi Sunak’s plan for a more “growth-focused” approach to city regulation in his Mansion House speech on Tuesday. © Simon Walker/HM Treasury The official added: “All regulators want to be unaccountable. We’re not talking about superpowers, but we’re asking them to see something again. The alternative would be to simply pass primary legislation to require them to do something. That’s what we’re trying to avoid.” The Treasury told the FT that the legislation would “strengthen the competitiveness of the UK’s financial services by supporting the efficient use of capital to boost economic growth and jobs”. A spokesman added: “We are working closely with regulators to deliver a new, coherent and flexible regulatory regime that takes advantage of the benefits Brexit can deliver to individuals and businesses.” The new rules follow a protracted row between the government and the BoE Prudential Regulator, which has warned that Solvency II reforms – which would free up some capital and loosen rules on where companies can invest – will not they can be a ‘free lunch’ for insurers. It argues that the regime should be tightened in other areas to protect policyholders. But City of London executives have grown increasingly frustrated with what they see as a slow and overly cautious approach taken by financial regulators after Brexit. A senior official said: “Regulators here seem to be getting more European every day. Slowness and caution are not helping the industry at all. They follow a line-by-line approach. The expectation was that the UK would take a much more free market approach.” One said the “call in” option could see the government step in where regulators drag their feet, saying “if regulators are not nimble or innovative then they should be pushed to do so”.
