British MPs Cite “Blockchain Banks” Rise in Opposing Integration of BoE Regulatory Subsidiary
Opposition British Members of Parliament have pressed for removal of a clause in the Bank of England and Financial Services Bill that integrates the Prudential Regulation Authority into the Bank of England as a committee. The opposition MPs believe the clause, Clause 12, demotes and undermines the independence of the PRA, which was created to oversee microprudential regulation in 2013 in the wake of the 2008 financial crisis.
MPs considered the bill in a Public Bill Committee on February 11th. Richard Burgon, a Labour MP from Leeds East, led the effort to remove clause 12 of the bill, stating that the ministers believe it will reduce its authority and effectiveness to mitigate microprudential risks with the advent of many financial technology and blockchain technology-driven startups. Burgon stated:
“With the creation of new starter banks, there is a greater need than ever for microprudential regulation as those institutions start up in business. If we continue to start new credit unions and new blockchain banks and so on, microprudential regulations remain fundamentally important. Also, there continue to be high street banks in financial difficulties, such as the Co-operative and Britannia. The danger of the Prudential Regulation Committee being appointed as is currently suggested makes it more likely that groupthink will develop.”
Burgon and other opposition MPs, like George Kerevan – a Scottish Nationalist MP from East Lothian, believe there is strength in having different regulatory agencies in existence simultaneously as it generates useful tension from a different angles to facilitate mitigation of systemic risks, the risks to the solvency of individual banks, and volatility of individual markets.
However, the UK government’s position is that the separation of microprudential oversight from the Bank of England has impacted communication and management in times of liquidity challenges.
Harriett Baldwin, the governing coalition’s Economic Secretary to the Treasury, responded to Burgon and Kerevan:
“…it is clear that the decision to separate that microprudential function and move it to the FSA created a system that was tested to destruction. That separation under the failed regulatory regime of tripartite arrangements meant there was insufficient communication between the microprudential regulation at the FSA and the day-to-day liquidity challenges that banks were experiencing in the markets in the run-up to the crash. That seems to me the strongest possible argument for having moved the microprudential function back to the Bank of England.”
In the subsequent committee vote of 10 to 7, the clause was permitted to stand, and the bill will continue to be debated in the committee stage of the House of Commons from February 23rd.