The UK government has been urged to remember the lessons from the global financial crisis in 2008 as it works to reform the financial services sector after its exit from the European Union. Following Brexit, the Treasury Committee has warned against "any inappropriate weakening" of the UK’s "strong" regulatory standards in a new report on the Future of Financial Services Regulation.
"While there are real opportunities to improve competitiveness through regulatory reform, competitiveness should not become a primary objective of financial regulators," it said on Thursday.
The committee said it wants to see the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) take the importance of growing the economy into account.
It recommended the regulators should be given a "secondary objective" to promote long-term economic growth in financial services by providing capital, credit and insurance to firms outside of the industry.
"While regulators should not be carrying out social policy, or filling the gaps where the government ought to be stepping in, the Committee recommends that the FCA should have regard for financial inclusion in its rule-making," it said.
The FCA should also consider how to improve its engagement with the poorest consumers, and seek data on the issues vulnerable consumers experience directly.
Additionally, it wants the financial watchdog to investigate whether there are opportunities for larger firms to be more experimental with innovative products.
It also recommended that the PRA considers what action can be taken to "level the playing field" between smaller banks and insurers, and larger companies which model their own capital requirements.
The committee said this move could strengthen competition.
Mel Stride MP, chair of the Treasury Committee, said: "The financial services sector is at a turning point, with regulators taking on new powers following the UK’s exit from the EU.
"While it is vital that regulators are not leant on to inappropriately water down regulations, and the Committee will remain vigilant in this area, there are likely to be real opportunities to lessen regulatory burdens without weakening standards.
"It is also important that the regulators have an objective to promote growth, not just for the financial services sector, but for the wider economy."
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