Despite a number of scandals that have highlighted the limits of the Financial Conduct Authority’s (FCA) influence, the government rejected proposed plans to give it greater powers to regulate UK listed companies and issuers of securities that are on the watchdog’s list.
The regulator has faced growing scrutiny in its ability to hold financial organisations to account and is seeking to expand its powers in order to take a stronger stance.
The government said that it did not “see the case” for the proposed expansion of the FCA’s powers, which would grant it formal powers to recommend to the government changes to its perimeter. This would make it easier for the watchdog to intervene in order to protect businesses from unregulated activities. The perimeter is currently set by the Treasury.
In August, the Commons Treasury committee, chaired by Labour MP Catherine McKinnell, suggested that the regulator be granted these powers. The committee warned the current process is informal and creates a ‘grey area’ between regulated and unregulated activities that can be exploited.
Ms McKinnel said the government’s decision was “disappointing” as giving the FCA greater powers would provide “greater transparency to the process”.
However, the government said: “[this] would add significantly to the FCA’s supervisory responsibilities and have resource implications, carrying the risk that the FCA’s ability to supervise authorised firms is reduced.”
In response to the government’s decision, chief executive of the FCA Andrew Bailey said: “[W]e share the committee’s view that there could be a more structured and transparent approach for identifying and engaging with HM Treasury on perimeter changes.
“This could allow for a regular opportunity to consider what activities are covered by regulation, and enhance transparency surrounding changes to the FCA regulatory perimeter.”
Climate Risk Disclosure
The FCA is also pushing to force companies to disclose climate risk by 2022, which would go further and faster than the UK government’s policies.
Andrew Bailey, the FCA’s Chief Executive, said: “We have an important role to play in creating an environment where firms can manage the risks from moving to a greener economy and capture the opportunities to benefit consumers.”
The watchdog has said that it will put its proposals out for consultation early next year before finalising the new rules.
The move was welcomed by sustainable finance groups. Speaking to the Financial Times, Ben Nelmes, head of public policy at the UK Sustainable Investment and Finance Association said: “Investors need more and better data from issuers to manage the growing physical and transition risks from climate change, and to take advantage of the opportunities from the shift to a net-zero economy.”
However, the FCA said that it would propose the new rules are initially adhered to on a “comply or explain” basis, which will come as a disappointment to some green groups and investors.
The proposal is still a step in the right direction in terms of climate change action as concerns increase about how it could affect the long-term sustainability of the financial system, and comes at a time when climate activities are protesting across London, targeting City institutions and the Bank of England.