Liz Truss’ rumoured plan to create a “mega regulator” out of the Financial Conduct Authority and Prudential Regulation Authority would do more harm than good for consumers, with one commentator suggesting such a merger could unleash a “tsunami of scandals”.
Truss (pictured) is said to be eyeing up an immediate review of the roles and responsibilities of the UK’s financial regulators should she emerge victorious over former chancellor Rishi Sunak in the Conservative leadership race, according to the Financial Times.
Among the ideas being floated is a potential merger of the FCA, PRA and the Payments Systems Regulator into a new body.
Campaign insiders told the FT, Truss was privately critical of the FCA, which has been marred by a string of scandals in recent years, including the collapse of minibond seller London Capital & Finance and the implosion of the Woodford Equity Income fund.
Tensions at the City watchdog have escalated this year amid Nikhil Rathi’s transformation programme, with staffers striking for the first time this summer.
The PSR and Bank of England, which oversees the PRA, would not respond on the potential merger when approached by the FT, while the FCA said it was “unable to comment”.
Prepare for a ‘tsunami of scandals’
Truss believes combining the UK’s regulators, less than a decade after they were set up in the wake of the global financial crisis, would help drive economic growth.
However, industry commentators believe such a merger would have disastrous consequences for UK consumers.
SCM Direct co-founder Gina Miller said: “The FCA is an unwieldy, unfit for purpose regulator. How will merging it and others into one mega regulator improve competency and consumer protection, or dire culture and staff morale?”
Miller said if Truss’ goal “is less regulation and less consumer protection, this is the way to go,” warning UK consumers should prepare themselves “for a tsunami of scandals”.
See also: Hong Kong regulatory boss to become new FCA chair
Loosening financial regulation post-Brexit
Robin Powell, author and founder of The Evidence-Based Investor blog, agrees the FCA “is in desperate need of reform,” but doesn’t believe combining the City watchdog with two other regulators will solve the problem.
“First and foremost, the FCA needs to start taking its responsibility to protect consumers far more seriously and show that it really does have the will to enforce its various directives,” Powell said.
“There’s been too much talk from the FCA about making the investing industry fairer and more transparent, but far too little action.”
Miller would like to see the future UK leader launch an independent “Kingman-style review” of the FCA, which includes the pros and cons of breaking it up into smaller specialist regulators.
Powell added he was “concerned” by rhetoric from both camps in the Conservative leadership debate hinting at a desire to loosen financial regulation post-Brexit.
“The current rules might need simplifying and rationalising, but they certainly shouldn’t be loosened. Consumers need more protection, not less.”
