United Kingdom Parliament Treasury Committee Update: Chair Seeks Commitment From FCA Not To Increase Costs

• Letter to John Griffith-Jones, Chairman, FCA, dated 28 July 2016 ( PDF 597 KB) 
• Inquiry: Financial Conduct Authority
• Treasury Committee

Chair's comments

Commenting on the correspondence, Mr Tyrie said:

"Regulation is sometimes mistakenly taken to be a free good. Consumers end up picking up the tab, either in higher prices or reduced services, or both. So the FCA’s costs need to be kept in check. The PCBS concluded that the FCA should become a smaller, more focussed organisation. The recommendation is as relevant for the FCA now, as it was in 2013.

Parliament will expect the FCA to be more transparent about how it attempts to meet the PCBS’ recommendation in future. Regulators should not be exempt from the need to obtain better value for money."

Background

The Treasury Committee has, for some time, been concerned with the production of a 'better, more effective and more cost efficient regulatory system'. On 27 January 2011, the Treasury Committee published 'Financial Regulation: a preliminary consideration of the Government’s proposals' (PDF 975 KB), in which it concluded:

There is a danger that the urge to respond adequately to the financial crisis will result in an assumption that more regulation is required. We believe that one of the tasks of the new bodies will be to analyse the existing regulatory structure and identify those regulatory requirements which are truly effective, and those which impose unnecessary costs. When we sought to gather evidence on the cost of regulation we were repeatedly told that those costs were unquantifiable because many regulatory requirements simply mirrored what good companies would do anyway. We consider this lack of precision tells its own story. The move to new regulatory arrangements should be accompanied by better analysis of the cost of regulation, both one-off and ongoing, for all kinds of financial firms, by sector and by size. The aim should be to produce a better, more effective and more cost efficient regulatory system. (paragraph 148).

Action was taken to encourage this when, in its report 'Changing Banking for Good, Volume II' (PDF 2.5 MB) ( PDF 2.5 MB), published on 12 June 2013, the Parliamentary Commission on Banking Standards, chaired by Rt Hon. Andrew Tyrie MP, concluded:

The most recent increase in regulatory costs is intended to be largely transitional. A strategic aim of the FCA should be to become a smaller, more focused organisation. The Commission recommends that the FCA replicate the Bank of England’s stated intention for the PRA to operate at a lower cost than its equivalent part of the FSA, excluding what is required to fund new responsibilities. The FCA should set appropriate timescales for implementation of this recommendation. (paragraph 985)

In October 2013, the FCA agreed to deliver this FSA-legacy work within the same budget for the financial year 2014/15 (PDF 905 KB):

We inherited a £446m budget from the FSA to deliver work we continue to commit to under the new regulatory regime. For the next financial year, 2014/15, we will deliver this FSA-legacy work within the same budget.  However, new responsibilities, such as consumer credit and our competition objective, will require additional funding. (point 109)

On 2 December 2015, the FCA responded to a request for further information, by the Treasury Committee, regarding the cost of the regulator ( PDF 558 KB).

On 2 March 2016, Mr Tyrie wrote to Mr Griffith-Jones with the Committee's concerns ( PDF 907 KB) that the FCA appears to be in breach of the recommendations on costs of the Parliamentary Commission on Banking Standards. Mr Tyrie asked four questions in an attempt to understand whether this had been the case, and what future commitment the FCA has to reducing its costs and becoming a smaller, more focused organisation. This letter is the third document attached.

Mr Griffith-Jones responded on 31 March 2016. ( PDF 1.12 MB)

Evidence sessions

Taking evidence from Mr Griffith-Jones on 26 April 2016, Mr Tyrie asked him to set out in a letter how the FCA is attempting to achieve value for money:

Q358 Chair: John Griffith-Jones, you mentioned resource allocation a moment ago. One of the recommendations of the Commission and also of this Committee in the last Parliament was that this be brought under greater control at the FCA. I am not going to raise the issue in any detail now, but there is dissatisfaction and concern that we might not be getting value for money for the levy. The levy is always paid for by consumers in the end, so it is a cost that we are all bearing and we need to make sure that we do get good value for money for it. It might be helpful if you set out in a letter to us, in your own time, how you are attempting to achieve that at the moment, given the recommendations that we have made to you in the past on this.

Mr Griffith-Jones responded on 14 June 2016 ( PDF 390 KB).

Andrew Bailey, the FCA's new Chief Executive Officer, was asked about a cap on the FCA's resources in his pre-appointment hearing with the Committee on 20 July 2016:

Q76 Chair: There is also the question that we were very firm on wanting to see a cap on resources, unless there was a good reason for there not to be, on the existing responsibilities and not for the new responsibilities. Are you going to continue to deliver that?

Andrew Bailey: That is my aim. I wanted to spend a bit of time getting into and looking under the bonnet of the budget. It is a sensible aim.

Q77 Chair: Perhaps in the autumn you could commit to sending us a letter setting out how you are going to do that.

Andrew Bailey: I can do that. Chair: It could include some numbers and the areas that you consider to be new and existing, so that we can track this over time. After all, this is cost to the consumers in the end.

Further information

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