Accountability of regulators Regulator engagement with HM Treasury, external stakeholders, and Parliament Regulators’ relationship with HM Treasury
As the regulators will receive new responsibilities following the revocation of retained EU law, it is important that the mechanisms underpinning the regulators’ relationship with HM Treasury are strengthened. This will ensure there continues to be appropriate democratic input into, and public oversight of, the regulators’ activities.
	There are already many provisions in the UK’s domestic framework for HM Treasury to hold the regulators to account. HM Treasury ministers have overall responsibility for the UK’s financial services regulatory framework and the continued effective operation of the financial services regulators as part of that framework.
	Existing domestic legislation already provides for a number of formal accountability mechanisms between the regulators and HM Treasury in specific circumstances, including:
HM Treasury appoints the Chair and Chief Executive of the FCA, as well as members of the FCA board and Prudential Regulation Committee (the governing committee of the PRA).
The Governor and Deputy Governors of the Bank of England are appointed by the Crown. HM Treasury is responsible for advising the Prime Minister who makes a recommendation to the Crown.
HM Treasury may appoint an independent person to conduct a review of the economy, efficiency and effectiveness of the PRA’s and the FCA’s use of resources.
HM Treasury may direct the PRA or the FCA to carry out investigations into specific events if that is in the public interest (under section 77 of the Financial Services Act 2012).
HM Treasury may direct the PRA or the FCA to take action, or refrain from taking action, in relation to specified matters in order to ensure that the UK meets its international obligations.
	In addition, FSMA 2000 provides HM Treasury with the ability to make recommendations to the regulators through open ‘recommendations letters’ on issues related to matters of economic policy which the regulators should take into account when exercising their general duties. The most recent recommendations for both the PRA and the FCA were issued on 23 March 2021 and supplemented by a further update issued on 7 April 2022.
	When the UK was a member of the EU, the government, through ministerial engagement in the European Council and via MEPs in the European Parliament, had a formal role in the EU system of regulatory policymaking. Following the revocation of retained EU law, the regulators will have greater responsibility to set the regulatory requirements which apply to firms in areas previously covered by retained EU law.
	The government considers that the existing mechanisms governing the regulators’ relationship with HM Treasury are effective. The government considers that the greater responsibility being given to the regulators should be balanced with effective policy input from, and appropriate accountability to, government. The government consulted in November 2021 on proposals to strengthen the engagement mechanisms between HM Treasury and the regulators. These proposals were broadly supported by respondents.
	The Act creates analogous provisions to the above in relation to the PSR, where these do not exist already, namely the ability for HM Treasury to send letters of recommendation. The approach set out here will also apply to the Bank of England in its regulation of CCPs and CSDs.