MPs urged to support new diversity objective in Bank of England Act
The Building Societies Association welcomes the new 'diversity objective' outlined in the Bank of England & Financial Services Act for improving competition and resilience in financial services, but urges MPs to help monitor its impact.
A properly functioning, healthy and genuinely consumer focused financial services market requires a broad range of different types and sizes of financial institutions within it to drive competition and financial resilience. If any one type of organisation was able to deliver everything that society requires from a retail financial services provider, there would be no case for diversity in financial services. Instead research from Cass Business School has shown that by fostering firms of different sizes and ownership structures to provide financial services brings significant benefits, to consumers and the economy as the wider system becomes more resilient.
In the past there have been occasions where neither business model nor size and relative risk have been considered by the regulators looking to solve an issue. This can lead to a regulation that is inappropriate or disproportionate. Examples of such issues in the past include the FCA’s original proposals for regulating the sale of retail capital instruments, the PRA’s implementation of the Bank Recovery and Resolution Directive and their proposed reform of the prudential regime for credit unions. At the time these issues were dealt with one at a time through consultation and engagement.
Ensuring regulators to consider financial diversity and get the balance right first time every time is of benefit to the industry and the regulatory regime. So we very much welcome the new diversity objective in the Bank of England & Financial Services Act which received Royal Assent this week. This new objective for regulators (Clause 19) adds significantly to their existing competition objective. It will require them to take corporate diversity into account when carrying out their duties and take mutuality into account specifically. In the long run this will lead to a more appropriate and proportionate regulatory regime, which considers these additional factors up front, in parallel with the norm of ‘large’ and ‘shareholder owned’.
The challenge now is to ensure that this new duty is embedded right from the start. Politicians have a prime role in achieving this, alongside the regulators themselves, by asking questions in the House and in Select Committees about the impact this new duty is having on diversity in financial services.
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