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Lord Flight calls for two amendments to be made to the Financial Services Bill in this new briefing paper.
- The new Financial Conduct Authority (FCA) rightly has an objective to promote effective competition in the interests of consumers. However, given that the FCA is also responsible for other global financial service industries, it should carry out its general functions in a way that supports the competitive position of the UK.
- A competitive market for the provision of banking services should be an important part of the PRA’s banking safety objective.
He argues that Treasury resistance towards including any direct references to international competitiveness and domestic competition arises because of the reluctance to be associated with supposed ‘light-touch’ regulation. This stems from a mis-diagnosis of the primary causes of the crisis in the UK. These were not so much the fault of light touch regulation as failures of corporate governance in major banks, loose monetary policy, and lack of oversight on banks’ balance sheets.
Flight warns against blanket condemnation of the financial services: banks are only a part of Britain’s financial services industry. The massive investment management industry, the Life and General Insurance industries, Lloyds’, stock brokers, hedge funds and all the other business service activities provided in London, came through the 2007/09 crisis in reasonable shape and without requiring any tax payer support. These industries are substantial contributors to the wealth of the nation and should be regarded as great national assets.
He also warns that the limited benefits of separating retail and investment banking should be recognised. In particular, if retail and investment banking were to be separated, a failure of a major investment bank could still have a major knock on effect on the retail banking system.