The UK Parliament's Treasury Select Committee of MPs has established a high powered unit for scrutiny of financial services regulations which may recommend scrapping rules to ensure the benefits of reform outweigh extra costs for industry.

The UK inherited the European Union's financial rules when it exited, and is currently moving the details into handbooks written by the Bank of England's Prudential Regulation Authority and the Financial Conduct Authority.

In the new report detailing its approach, the committee outlined that new forms of scrutiny will be required, given the number of regulatory initiatives is likely to grow as regulators assume additional responsibilities following the UK's exit from the EU.

The Sub-Committee on Financial Services Regulations will take the lead on scrutiny of financial regulatory proposals and will have powers to "send for persons, papers and records" and agree reports.

The Sub-Committee will be chaired by Mel Stride MP and will, initially, consist of all the members of the Treasury Committee.

Stride said: "Following the UK's exit from the EU, our regulators have assumed significant new responsibilities. Those will require scrutiny, and Parliament has an opportunity to put in place a process which is less bureaucratic and significantly more nimble than was previously the case in the European Union.

"The Treasury Committee is well placed to conduct this scrutiny. We often consider new regulatory proposals and, given our responsibility to scrutinise the Treasury and its associated regulators, we can take a holistic view of regulatory change.

"Our approach will be targeted and flexible, with the new Sub-Committee devoted to the scrutiny of financial regulations and underpinned by a new and well-resourced unit of experts and specialists."

The Treasury Committee's approach to scrutiny of proposed financial services regulations:

The UK's exit from the EU presents an opportunity to establish a less bureaucratic and significantly more nimble scrutiny process.

The Committee believes it would be most effective to intervene at the consultation paper stage of the regulatory proposal process, where proposals have crystallised into draft texts but when there is clear scope for influence.

A new Financial Services Scrutiny Unit is being formed, which will include financial specialists, staff members of the Treasury Committee, and a legal adviser from the Office of Speaker's Counsel. Specialist advisers will also be appointed to provide the Sub-Committee with detailed and expert knowledge.

The Unit will offer advice to the Sub-Committee on the likely impact, fitness for implementation and level of appropriate scrutiny for each proposal.

The Sub-Committee will focus on assessing regulatory proposals which contain texts that would have legal effect.

It will normally intervene at the consultation paper stage, when proposals have crystallised into draft texts but when there is clear scope for influence. The Sub-Committee will consider the following points:

  • Is the policy justified and desirable? Is the balance between service providers, consumers and others the right one? Do the benefits outweigh any drawbacks?
  • Is the regulator acting within their delegated power?
  • Is the drafting of the necessary standard?

The Sub-Committee would then take a decision on whether the proposal merited closer examination.

This might be through a call for written submissions and oral evidence, or written questions to regulators, or it might be raised in one of the Treasury Committee's accountability sessions with the relevant regulator. The Sub-Committee could choose to produce a report on the proposal with recommendations for change.

The Sub-Committee will commence its work by scrutinising the Prudential Regulation Authority's proposals for a ‘Strong and Simple Framework', which would amount to a significant change in prudential policy applying to banks and building societies. It plans to invite written submissions and take oral evidence on the proposals.