Stay informed with free updates
Simply sign up to the UK financial regulation myFT Digest — delivered directly to your inbox.
The new minister for the City of London has said UK regulators need to be more comfortable with risk-taking by companies.
Bim Afolami, who was promoted in a ministerial reshuffle this month, said on Tuesday that regulators “need to realise that if you’re regulating a market, in any area, there’s no point having the safest graveyard”.
“Animal spirits need to be there, we need to innovate, we need to drive growth and initiative,” he told the Financial Times Global Banking Summit, adding that this needed to be balanced with effective regulation.
The comments came as the government pushes regulators to promote growth in an effort to breathe life into the UK’s flatlining economy, reversing a trend of tighter supervision since the 2008 financial crisis.
The financial, competition and accounting watchdogs have all been ordered to promote the UK’s growth and competitiveness. The energy, water and communications regulators are also set to be given a new remit to encourage “growth”.
Afolami, a junior minister in the Treasury, said there was “a natural and perfectly acceptable conflict between politicians and regulators” because they had different incentive structures.
While politicians needed to avoid short-term thinking, watchdogs should not try to remove all risk, he said.
“Risk, as long as [it’s] watched and supervised and maintained, is integral to the growth and innovation of any part of the economy,” said Afolami.
The former Freshfields lawyer and HSBC banker said his agenda was not just about removing regulation but making regulators more effective. “A lot of this is actually simplifying, not deregulating,” he said, adding that the long list of bodies that some regulators must report to could sometimes make them less accountable in practice.
David Bailey, who leads the Bank of England’s supervision of UK banks, later at the summit rejected suggestions of any conflict between regulators and government over the pro-growth approach.
“[Afolami] talked about balancing that [facilitating risk-taking] with effective regulation and that is entirely consistent with the approach we are already taking,” Bailey said.
He noted that the BoE’s mandate included a primary objective of promoting “safety and soundness” and secondary mandates around fostering competition and competitiveness.
Regulators including the BoE’s governor Andrew Bailey have previously cautioned the government against pushing its competitiveness agenda too far, and strongly resisted “call in” proposals that would have given ministers a veto over regulatory decisions.
Afolami, who became an MP in 2017, said his three priorities as City minister would be implementing a series of previously announced reforms to the UK’s capital markets, improving the country’s regulatory structures and promoting the ownership of companies by ordinary people.
A “broader set of reforms” to encourage people to take stakes in companies would follow chancellor Jeremy Hunt’s announcement last week that he would explore selling some of the government’s stake in NatWest to the public, said Afolami.
Many young people “don’t feel that they have as much of a stake in society as previous generations did”, he added.
Afolami said he wanted cryptocurrency businesses to operate in the UK despite the warnings of Charles Randell, former chair of the Financial Conduct Authority, that fraud was “a feature, not a bug” of much of the industry.
“It’s really important that we don’t tar every crypto business as being like FTX or Binance,” said Afolami, referring to two leading crypto exchanges, the first of which collapsed while the second paid $4bn to settle a US criminal investigation.
The government’s plan to bring crypto groups into the UK’s regulatory net would give parliament “more comfort”, Afolami said.
He added that he supported last month’s decision by financial regulators to end the cap on bankers’ bonuses and added that he would not be taking measures to monitor pay in the sector.
Additional reporting by Laura Noonan
Credit: Source link