New objectives and regulatory principles Regulator engagement with HM Treasury, external stakeholders, and Parliament Regulators’ relationship with HM Treasury
Section 1JA of FSMA 2000 provides that HM Treasury may make recommendations, by notice in writing, to the FCA about aspects of economic policy of His Majesty’s government to which the FCA should have regard when considering certain matters. These are, how to act in a way which is compatible with its strategic objective, how to advance one or more of its operational objectives, the application of its regulatory principles and the importance of taking action to minimise the extent to which it is possible for a business to be used for a purpose connected with financial crime (in section 1B(5)(b) of FSMA 2000).
	Section 30B of the Bank of England Act 1998 provides that HM Treasury may make recommendations, by notice in writing, to the Prudential Regulation Committee ("PRC") about aspects of economic policy of His Majesty’s Government to which the PRC should have regard to when considering how to advance the PRA’s objectives and when considering the application of the regulatory principles in section 3B of FSMA 2000.
	HM Treasury is required to make recommendations to the FCA and the PRA at least once in each Parliament.
	The Act inserts a new provision in FSMA 2000 that requires the FCA and the PRA to respond to each recommendation made by HM Treasury in writing before the end of 12 months beginning with the date the notice containing the recommendation was given. The new provision places an ongoing requirement, to be exercised every 12 months, on the FCA and the PRA to update HM Treasury on its responses to the recommendations.
	The FCA’s rule-making powers are set out in Parts 5, 6, 8A, 9A, 9B, 9C, 12A, 15, 15A, 16, 17, 17A, 20, 22 of, and Schedules 1ZA and 1A to, FSMA 2000. This includes the power to make ‘general rules’ in section 137A. In addition, the FCA has rule-making powers under the Payment Services Regulations 2017 32 and the Electronic Money Regulations 2011 33 .
	The PRA’s rule-making powers are set out in Parts 5, 9A, 9B, 9D, 11, 12A, 12B, 15A, 19 of, and Schedule 1ZB to, FSMA 2000.
	The Act inserts in FSMA 2000 a general duty on the FCA and the PRA to keep their rules under review and to issue and maintain a statement of policy setting out how the FCA and the PRA will review their rules. The provision provides that the statement of policy must provide information about how representations, including by a statutory panel, can be made to the FCA and the PRA with respect to the duty to review rules and the arrangements to ensure that those representations are considered. The new provision gives HM Treasury the power to direct the FCA and the PRA to carry out a review of rules that the FCA or the PRA have made where HM Treasury believes it is in the public interest to do so. Where HM Treasury has directed the FCA or the PRA to undertake a review of certain rules, the new provision also requires the FCA and the PRA to make a written report to HM Treasury detailing the findings of its review. HM Treasury must then publish this report and lay it before Parliament. Schedule 7 amends FSBRA 2013 to include new sections imposing equivalent requirements on the PSR.
	Sections 144C(3) and (4) of FSMA 2000 require the PRA to consider and consult HM Treasury on the impact on relevant equivalence decisions when making rules relating to the Capital Requirements Regulation (CRR) or CRR Basel standards. Sections 143G (3) and (4) of FSMA, contain a similar requirement for the FCA when making rules relating to the prudential regulation of investment firms regulated by the FCA.
	The Act inserts section 409A in FSMA 2000 to specify the circumstances in which the regulators must consult with HM Treasury in relation to the effect of certain actions on deference decisions.
	The Act inserts section 409B in FSMA 2000 to specify the circumstances in which the regulators must notify HM Treasury in relation to compatibility of certain actions with international trade obligations.
	Section 138L of FSMA 2000 sets out general exemptions to the regulator’s duty to consult the public. These (and any other exemption from a duty to consult) are relevant to determining whether and when the regulators must consult / notify HM Treasury under Sections 409A and 409B. This is because the obligation to consult/notify HM Treasury will only generally only apply where the regulators are under a duty to consult in respect of the action that they propose to take (though section 409B also contains obligations which apply in the absence of a duty to consult).
	Section 138M of FSMA 2000 sets out an exemption to the FCA’s duty to consult the public in relation to temporary product intervention rules. The application of section 138M to sections 409A and 409B has been modified by the Act. The modified section 138M is relevant to determining whether and when the regulators must consult/ notify HM Treasury under sections 409A and 409B.
	Section 410 of FSMA 2000 allows HM Treasury to direct the FCA, the PRA and the Bank of England in exercising certain functions to take action (or refrain from taking action) in order to ensure that the UK meets its international obligations. Obligations arising from international trade agreements fall within this section. Section 410 of FSMA 2000 does not apply to the PSR.
	Section 9S of the Bank of England Act 1998 requires the Financial Policy Committee to prepare an explanation of how the use of powers in section 9H (directions to the FCA or the PRA requiring macro-prudential measures) and section 9Q (recommendations to the FCA and the PRA) is compatible with duties under section 9F (other general duties). Section 9F sets out that the Financial Policy Committee must have regard to the international obligations of the UK. Sections 409A and 409B of FSMA 2000 accordingly omit overlaps with the provisions in the Bank of England Act.
	Part 2 of Schedule 17A to FSMA 2000 applies certain provisions of FSMA 2000 in relation to the Bank of England. By amendments under section 450 of this Act, sections 409A and 409B of FSMA 2000 are applied with modification to the Bank in exercise of its FMI functions.
	FSBRA 2013 establishes the PSR as the authority responsible for exercising functions in relation to payment systems. Schedule 7 amends FSBRA 2013 to include a new section 107A on international trade obligations. This works analogously to section 409B to specify the circumstances in which the PSR must notify HM Treasury in relation to compatibility of their actions with international trade obligations. Unlike the other regulators, the PSR does not have a rule-making function, and instead imposes generally applicable requirements. Accordingly, new section 107A applies to proposals to impose generally applicable requirements, or changes to the PSR’s general policies and practices).