Government veto over city curbs would be a ‘serious concern’, says Bank of England MP

Giving the government a veto over actions taken by city regulators would be a ‘serious concern’ and damage the competitiveness of UK financial regulation, the head of financial stability at the Bank of England told MPs. .

Sir Jon Cunliffe, deputy governor of the BoE, told a parliamentary committee on Wednesday that an appeal power allowing ministers to review regulatory decisions risked undermining perceptions of central bank independence for 25 years.

“A power calling out, or rewriting or vetoing, the rules would frankly give me serious concerns,” Cunliffe said. “It goes to competitiveness. . . The credibility of the institutional framework is very important for the competitiveness of the United Kingdom.

He added: “If it really gives ministers the chance to make a second judgment, it would affect, yes, the perception of the independence of the regulatory part of the Bank of England.”

The Treasury’s proposed Financial Services and Markets Bill aims to enable more agile and personalized financial regulation for the UK post-Brexit to boost the global competitiveness of the City, which has been dubbed ‘Big Bong 2.0″.

Under the proposals, ministers would have the power to challenge financial regulators over decisions they believe were holding back competitiveness – although Andrew Griffith, the city minister, has vowed to use that power sparingly.

The bill would also give regulators and the BoE a duty to ensure the UK’s competitiveness. This is controversial as it was previously the mandate of the former watchdog, the Financial Services Authority, which was seen as a cheerleader for the City of London on the eve of the 2008 financial crisis.

The issue of central bank independence has become particularly sensitive in recent months. During her leadership campaign, Liz Truss promised to review the BoE’s mandate, although she later said she was committed to safeguarding the independence of the bank, established for the first time. in 1997 under a Labor government.

Since his election, a rift has opened between the BoE and the Truss government over the cost of living crisis and soaring inflation, which stood at 10.1% in September, a peak in 40 years.

Mel Stride, Conservative Chairman of the Treasury Select Committee, has previously expressed concern that criticism of the BoE’s inflation-fighting strategy could provide cover for a broader attack on the central bank.

Tensions between the government and the bank have been heightened by the ‘mini’ budget presented by former Chancellor Kwasi Kwarteng, which promised the biggest tax cuts in more than 40 years.

A blame game between bank officials and the government ensued over which policies were behind a surge in long-term gilt yields last month, triggering a liquidity crunch for pension funds and made mortgages more expensive and harder to obtain. owners.

Cunliffe said the BoE was not fully briefed on the “mini” budget before it was released.

“If we thought there was a clear risk to financial stability ex ante (we did that ex post) – and the market reaction is always hard to predict – but if we thought it affected financial stability , we would have advised the government. But not on the composition of fiscal policy; that would have been due to its ripple effect,” Cunliffe said.

He added that, as new Chancellor Jeremy Hunt had indicated that his financial statement, due on October 31, would be akin to a budget with the costs of the Office of Budget Responsibility, he would expect the BoE to be informed. in advance.

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