Financial sector regulators should be tasked with delivering net zero, campaigners argue
Citizens and campaigners have urged the government to rethink its pursuit of ‘competitive’ financial regulation in favour of rules that focus on delivering a stable financial system that protects the environment and consumers.
The findings of a survey of more than 2,000 people by charity Finance Innovation Lab this morning reveal that nine out of 10 people said international competitiveness should “not be a top priority” in post-Brexit financial services regulation.
The polling exercise come as 37 charities and public interest groups have come together to call on the government to marshal the “once-in-a-generation” overhaul of financial services regulation that is currently underway to advance the UK’s economic, environmental, and social goals. As such they have called on the government to downgrade its focus on bolstering international competitiveness and give regulators new duties to require them to take action to help achieve the UK’s emissions reduction targets and deliver its commitments under the Paris Agreement.
The government is currently proposing to introduce a new objective for financial regulators which would give them a mandate to promote the international competitiveness of the UK financial industry, with a consultation on the matter running until 9 February.
The proposal has faced significant opposition, with critics noting that the plans risks eroding the independence and ability of regulators to act in the public interest and could result in watered-down standards for finance.
Competitiveness was removed from the objectives of UK financial regulators in 2012 in the fallout from the global financial crisis, amidst fears it had led to light touch regulation that had allowed financial firms to take ever greater risks. A range of organisations, including the International Monetary Fund, Oxfam, and the Tax Justice Network, have warned that a focus on competitiveness is risky, because when a finance sector becomes too large it can begin to suck resources from the real economy and reduces productivity, creates instability, and drives inequality.
A spokesperson from the Treasury said the government wanted regulation that supported the expansion of the UK’s financial system, while simultaneously maintaining financial stability and consumer protection.
“The way financial services is regulated is crucial to the future strength of the UK as a global financial centre. Maintaining financial stability, consumer protection and a sound financial system is, and will remain, central to that,” the spokesperson said. “But we also want regulation that supports growth, which is why we are proposing the Financial Conduct Authority and Prudential Regulation Authority also advance the long-term growth and international competitiveness of the UK economy as a secondary objective and consider the government’s commitment to achieve net zero in their regulations.”
The spokesperson noted the net zero was being proposed as a new secondary objective for the reforms, and queried the results of the Finance Innovation Lab’s survey, on the grounds it was unclear what questions had been asked, or how the proposals had been explained to respondents.
Greenpeace, the Tax Justice Network and Tax Justice UK, RSPB, ShareAction, Positive Money, Make My Money Matter, and Uplift are among the organisations that have announced this morning they are “strongly opposed” to the introduction of a statutory objectives for regulators to promote the international competitiveness of the industry.
The groups have instead called for regulators to be given an objective to align the financial system and its regulatory framework with the 1.5C temperature goal of the Paris Agreement, while also considering the importance of nature protection.
They have warned that the current plans could undermine the UK’s climate targets and green finance ambitions, while also compromising the independence of regulators.
“Just a decade ago, UK parliament acknowledged that a focus on competitiveness by regulators had contributed to the global financial crisis Of 2007/08 – the cataclysmic event that cost the world economy $10tr on and saw millions lose their savings, homes, and jobs,” the group states. “In the words of the Bank of England’s Andrew Bailey in 2019, when he was CEO of the Financial Conduct Authority, the regulator ‘was required to consider the UK’s competitiveness, and it didn’t end well, for anyone’. The Chancellor’s laudable aim for the UK to be the world’s first net zero financial centre would be undermined if the risk of instability deterred the private investment urgently required to fund a just climate transition.”
The group has also called on the government to give regulators new duties to promote financial inclusion and to take steps to increase public accountability and transparency in financial services by setting up a new register of lobbyists and introducing a new financial services joint committee in Parliament tasked with scrutinising legislation and regulation.
Jamie Audsley, head of future nature at RSPB, said the current proposals missed a “golden opportunity” to cement the UK’s standing as a world leader in green finance.
“Giving the regulators a statutory objective to take our climate goals into account would be a world first and would help cement the wins of the Glasgow COP,” he said. “The Review is a great opportunity to make the UK the world’s first net zero financial centre and to align finance with the government’s climate goals, thereby achieving the Chancellor’s vision of ‘rewiring the financial system for Net Zero’.”