UK government proposes ‘competitiveness’ mandate for BoE

The UK government is pressing ahead with plans to give the Bank of England a formal mandate to promote the “competitiveness” of financial services, despite warnings that it could undermine financial stability.

The government published draft legislation on July 20 setting out which financial regulations it wants to scrap or change now the UK has left the European Union.

One key change contained within the Financial Services and Markets Bill is the competitiveness mandate. The bill states that both the Prudential Regulation Authority and Financial Conduct Authority should treat competitiveness as a secondary mandate.

Previously the regulators had been expected to set regulation with regard to government policy, including competitiveness, but it was not established as a formal mandate.

The inclusion of the wording came despite a warning from the International Monetary Fund earlier this year that it could be in conflict with the BoE’s primary financial stability mandate.

“Tension with policies to enhance ‘the competitiveness’ of the UK financial system has surfaced,” the IMF’s financial sector assessment programme (FSAP) noted in February.

“The FSAP has urged the authorities to remain mindful of the ultimate limits of explicit or implicit fiscal support for the financial sector, and to persevere with their demonstrated commitment, in support of highest standards of prudence and good governance of domestic and international finance,” the IMF said.

The IMF argued that the maintenance of “robust and high-quality regulatory standards” was the best way to encourage continued investment in the UK financial sector.

However, the government views cutting back on regulation as a means of boosting UK growth. Nadhim Zahawi, the chancellor of the Exchequer, highlighted on July 19 how the bill “will repeal hundreds of pieces” of EU law.

The UK’s governing Conservative party is currently selecting a new leader, who should become prime minister in early September. It is not yet clear whether either of the two candidates, former chancellor Rishi Sunak or foreign secretary Liz Truss, will retain the legislation. Sunak has clashed with the outgoing prime minister, Boris Johnson, over some aspects of economic policy.

The BoE and government have also clashed over aspects of proposed reforms to insurance regulation. The central bank insists that a loosening of the rules in one area needs to be balanced by tighter rules elsewhere.

Another controversial reform was not included in the draft financial services bill. Zahawi acknowledged the Treasury was considering legislation that would give ministers the power to intervene in regulatory decisions.

The chancellor said he was “keeping an open mind” on the issue. However, it was not included in the bill, “because I want time to consider all the arguments before making such an important decision”, he said.

Besides the competitiveness mandate and reforms to insurance regulation, the draft law also contains legislation governing crypto assets, capital markets and access to cash. If passed, it would give regulators new powers to issue directions to cash handlers, as part of efforts to ensure cash remains available despite falling transaction volumes.