Liz Truss mocked for ‘dangerous’ reported plan to merge UK financial regulators | Regulators

Former business secretary Vince Cable has criticized Liz Truss, warning that plans put forward by her campaign team to merge the City’s top regulators would be “dangerous”.

His comments came after the front-runner in the Conservative leadership race was said to be preparing for a sweeping review of financial regulators’ responsibilities if she succeeds in beating rival Rishi Sunak

Citing campaign insiders, the Financial Times reported that Truss was considering merging the Financial Conduct Authority (FCA), which is largely responsible for overseeing company behavior and protecting consumers’ financial interests, with the Prudential Regulation Authority (PRA), which is part of the Bank of England and responsible for ensuring that banks and insurance companies are financially stable and do not put the wider economy at risk.

The merger could also include the Payment Systems Regulator (PSR), which oversees the networks that facilitate money transfers, contactless payments and ATMs across the UK.

The move would mean integrating the City watchdogs less than a decade after they were formed in 2013 as part of a post-financial crisis overhaul originally mooted by then chancellor George Osborne in 2010.

Cable said it would be a mistake to reverse those reforms.

“It’s been a decade and a half since the banking crisis that did so much damage to the British economy,” Cable told the Guardian. “Much time, manpower and money have been spent on establishing a regulatory system to ensure that the financial sector does not again impose serious systemic risk.”

The PRA and FCA were created by splitting the now-defunct Financial Services Authority, which was criticized for failing to properly supervise banks in the run-up to the previous financial crisis, preventing scandals including the mis-selling of payment protection insurance.

Cable said that while the Tory leadership contest had been peppered with “vague” promises that could fall by the wayside when the business of running government kicked in, “the proposals for financial regulation, on the other hand, are more specific and more likely to see the light of day. That’s why they are dangerous”.

A bank board member also told the Guardian that Britain also risked “looking a bit silly internationally” by rowing back on reforms from the financial crisis. “There’s quite a risk of people saying, ‘Well, what are they doing here, you know? Can’t they decide?

“Most people think we should focus on the substance, not the structure,” the board member said, adding that the city was unlikely to welcome further uncertainty after Brexit.

Any plans to reintegrate the supervisors are likely to raise eyebrows, just as Britain braces for another economic downturn triggered by rising inflation. The decision could also face criticism if it results in job and cost cuts that risk further emasculation by UK regulators. PRA has around 1,350 employees, while PSR operated with around 130 employees. FCA is the largest of the three with approximately 4,000 employees.

As tensions continue to rise between politicians and the Bank of England over the latter’s alleged failure to keep rising rates under control, some suggested Truss may also be responding to the City’s own frustrations with the FCA over alleged inefficiency and its willingness to intervene “aggressively” ” on behalf of consumers.

But while Cable acknowledged that both the FCA and PRA “have had their critics”, the financial system was far more stable and able to withstand “significant stress” and that mis-selling scandals were “now very rare”.

Cable also warned that an overhaul would cause unnecessary disruption and costs, at a time when the FCA already faces criticism over poor resources and its failure to protect consumers caught up in recent scandals, including the collapse of Neil Woodford’s investment fund and mini-bond firm London Capital & Finance.

“The saying ‘if it ain’t broke, don’t fix it’ holds true here, especially since the machine was so difficult to assemble,” Cable said.

“The financial supervisory authorities already have a problem with keeping employees who are constantly being poached by the companies that are being regulated with the offer of better pay packages. Administrative upheavals do not help, he added.

The Bank of England and PSR declined to comment on reports of a potential merger, while the FCA said it was unable to comment.

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