The Post-Brexit Accountability of the Financial Conduct Authority: Developing Parliament’s Institutional Capability

(2023) Law Quarterly Review

37 Pages Posted: 12 Sep 2022 Last revised: 6 Jul 2023

See all articles by Elizabeth Howell

Elizabeth Howell

London School of Economics - Law School

Date Written: August 26, 2022

Abstract

The Financial Conduct Authority (FCA) works in a highly dynamic field; a vast and complex body of provisions apply to financial services. Over the decades, the regulatory framework has also evolved to factor in the UK’s membership of the EU, during which an increasing amount of financial regulation was set at the EU level. The UK’s departure raises the question as to how important policy and regulatory functions, which were formerly conducted at the EU level, should operate in a standalone UK regime. The FCA is to be granted greater rule-making powers and as a quid pro quo, it will be subject to an enhanced accountability framework. This is a delicate issue; given the greater responsibilities being transferred, sufficient accountability and transparency is necessary, however, it is also important not to undermine its independence.

This article analyses the existing FCA framework, considers particular Government proposals as they apply to the FCA (to be implemented via the 2022-23 Financial Services and Markets Bill), and makes normative proposals regarding a framework governing its future accountability. In particular, it suggests that the rebalancing of the FCA/HM Treasury (HMT) relationship could impact on the FCA’s relative independence. In comparison, the proposals regarding future parliamentary scrutiny are very light-touch. It argues that rather than focusing on the FCA/HMT relationship, it would be preferable to develop Parliament’s institutional capability to scrutinise the regulator. As the regulator will be producing and amending a significant body of regulation that can have an impact on the whole of society, technical democratic oversight is vital. In this regard, the article suggests that a joint parliamentary committee should be created with a mandate focused on scrutinising financial services and its regulation, as well as overseeing the regulator’s operational functions. The article also draws insights from the Joint Committee on Human Rights as well as the Australian Joint Committee on Corporations and Financial Services to inform the discussion of institutional design. In particular, for such a committee to operate effectively, it should be cross-party, apolitical, and will need to be properly resourced so that it can grapple with the highly technical and dynamic nature of financial regulation. Finally, although the article’s focus is the FCA, the UK’s regulatory model encompasses the FCA’s sibling body, the Prudential Regulation Authority (PRA) (as well as other bodies, such as the Bank of England having particular oversight responsibilities). While tackling the overall model is beyond the article’s scope, a new specialist committee should have the jurisdiction to consider the entirety of the UK’s financial ecosystem.

Keywords: Financial Conduct Authority; Brexit; Accountability; Financial Markets Law

JEL Classification: K10, K22, G10

Suggested Citation

Howell, Elizabeth, The Post-Brexit Accountability of the Financial Conduct Authority: Developing Parliament’s Institutional Capability (August 26, 2022). (2023) Law Quarterly Review, Available at SSRN: https://ssrn.com/abstract=4204823

Elizabeth Howell (Contact Author)

London School of Economics - Law School ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

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