Liz Truss, the frontrunner to be the next UK prime minister, has the City of London’s top regulators in her sights with an immediate review of their roles and responsibilities if she wins, according to campaign insiders.
The foreign secretary, who is 32 points ahead of the former chancellor Rishi Sunak in the latest survey of Conservative party members, is eyeing up plans to merge the Financial Conduct Authority, Prudential Regulation Authority and Payments Systems Regulator into a new body.
One well-placed financial services executive said Truss was privately critical of the FCA, which faced its first industrial action this year under new chief executive Nikhil Rathi, and wanted to overhaul financial regulation as part of “a wider war on technocrats” and civil servants.
Truss’s leadership campaign declined to comment on the proposals, but one campaign insider confirmed that she would review the organisations. “No decisions have been made on the future of regulators. Liz will look at their role as part of a review. She’s clear that there has not been enough focus on economic growth,” the official said.
The PSR and Bank of England declined to comment on a potential regulators’ merger. The FCA said it was “unable to comment”.
Sunak’s campaign criticised the proposals as “ignoring the lessons of the financial crisis”. One campaign insider accused the foreign secretary of “recreating Gordon Brown’s failed regulatory model”, referring to the former Labour prime minister, who served as chancellor for 10 years before taking the top job in 2007.
The 4,000-strong FCA, which has been sharply criticised for failings, including inadequately overseeing collapsed minibond seller London Capital & Finance, is the UK’s largest financial regulator. It oversees the conduct of big banks and insurers, and the conduct and financial stability of about 60,000 financial services companies spanning everything from smaller lenders to funeral plan providers.
The PRA sits within the BoE. Its 1,350 staff are responsible for safeguarding the financial health of the biggest banks and insurers operating in the UK.
The PSR is the smallest of the trio, with 130 staff, and operates as a subsidiary of the FCA.
Merging the FCA with the other organisations to create a new regulator would call into question the future of the three organisations’ leaders, but Rathi is seen as most vulnerable given his organisation’s recent struggles. A spokesperson for Rathi declined to comment. Truss’s campaign said it would not comment on individuals.
The plans would represent the biggest shake-up of the UK’s critical financial regulatory authorities in more than a decade. George Osborne, the former chancellor, masterminded the separation of the UK’s prudential and conduct regulator in 2010, disbanding the Financial Services Authority, which he slammed for letting the UK’s financial system lurch into crisis unchecked.
Its functions were split between the PRA and FCA, created in April 2013, and the PSR, which came two years later.
The UK has vowed to put “growth and competitiveness” at the heart of post-Brexit financial regulation, tabling a new law that will give the PRA and the FCA a “secondary mandate” to further growth. It is also encouraging the paring back of regulatory burdens so that insurers can invest more in UK infrastructure.
Truss has made structural reform a cornerstone of her platform to be prime minister. She has pledged to review the BoE’s mandate, with allies suggesting that it had been too slow in raising rates and tackling inflation. She has insisted that the BoE should remain independent.
The foreign secretary has also pledged to shake up the Treasury and make Number 10 the “economic nerve centre” of her government. Although Truss has refused to rule out splitting up the Treasury, she has told allies that it would be “mad” to do so during an economic crisis.