Can regulators get the City growing? It will be hard to tell, lawyers warn

The government may run into trouble as it looks to gauge the impact of City regulators in boosting the growth and international standing of the UK’s financial sector, top lawyers have warned.

As part of the landmark Financial Services and Markets bill making its way through parliament, ministers have tabled plans to introduce secondary growth and competitiveness objectives for the Prudential Regulation Authority and Financial Conduct Authority in a bid to rejig the the focus of the City’s watchdogs.

The Treasury yesterday turned to City firms to consult on what “additional metrics it is most appropriate for the regulators to publish” to help scrutinise their work “embedding and advancing their new objectives”.

The plans to measure the performance of regulators were cheered from bodies across the Square Mile, with the City of London’s policy chief Chris Hayward saying “what gets measured gets done”.

However, top lawyers warned the performance of the watchdogs against their new benchmarks may be a struggle to quantify.

“The challenge will be in finding new measures that paint a clear picture of the regulators’ overall contribution to competitiveness and growth,” Robert Dedman, partner at law firm CMS and former head of enforcement at the PRA, told City A.M..  

“It’s easy when a process has a clearly-defined end point, such as an authorisation or an approval. But measuring the impact of the FCA’s intensive approach to supervision is likely to prove much more difficult.”

Moves to introduce new secondary objectives for the regulators were welcomed by both the PRA and FCA last year but triggered warnings from regulators that they would not engage in a “race to the bottom”.

Vicky Saporta, executive director of the Prudential Policy Directorate at the Bank of England, said the change in its remit “should not encourage risky bets on regulatory standards”. 

The government has been looking to breathe life into the UK’s financial services sector amid a flood of firms ditching London in favour of foreign markets in recent months.

Lawyers at Eversheds Sutherland said the calls for proposals from the Treasury may struggle to capture the work of the Financial Conduct Authority in particular, which has a remit across a sprawling array of sectors and areas.

“[The] call for Proposals sets out the need for metrics to show how the regulators measure up against their objectives but does not mention any concrete metrics to be used in measuring against the international competitiveness and growth objectives,”  Martin Sandler, financial services partner at Eversheds Sutherland, told City A.M.. 

“The paper acknowledges that it would be easier to measure the achievement of the government’s objectives as a whole rather than the individual contributions of PRA and FCA in achieving them.”

Sandler added that it may be possible to “measure smaller individual components or regulators’ contributions”. 

“For example in the latest FCA business plan, there is a section on “Promoting Competition and Positive Change”, which states the FCA has provided support to 300 newly authorised or high growth firms through the early and high growth oversight function,” he added.

Ministers will now be consulting on the plans with industry until early July, before firming up the plans.