On 19 April 2016, it was announced that the UK’s Treasury select committee (“TSC“) had won an extra power – the power to hold a hearing with potential Chief Executives of the Financial Conduct Authority (“FCA“), ahead of their formal appointment.

 TSC

The TSC is appointed by the House of Commons to “examine the expenditure, administration and policy of HM Treasury, HM Revenue & Customs and associated public bodies, including the Bank of England and the Financial Conduct Authority“.  Therefore, the TSC essentially “checks and balances” the decisions/actions of these bodies.

What the TSC was seeking

In a Report on the FCA, the 2010-15 Treasury Committee argued that the legislative proposals regarding the Chief Executive of the FCA did not provide adequate accountability, or the framework for sufficient scrutiny of, the regulator.

As such, the TSC were seeking legislation which allowed the TSC to carry out pre-appointment scrutiny of any proposed Chief Executive of the FCA and the “right to veto” any government appointment or dismissal of the Chief Executive of the FCA.  Whilst the Government agreed that any proposed Chief Executive of the FCA should be subject to a hearing before the TSC, the Government was proposing that this was pre-commencement and not pre-appointment, due to the market sensitivity of the appointment, and, in line with the procedure followed for appointees to the Monetary Policy Committee of the Bank of England.

The TSC was seeking to achieve the pre-appointment scrutiny referred to above by way of an amendment to the Bank of England bill, which was debated in the House of Commons on 19 April 2016.

What was agreed?

However, a compromise was reached ahead of the House of Commons debate.  The Chancellor (George Osborne) wrote to the Chairman of the TSC (Andrew Tyrie MP) setting out the Chancellor’s agreement to allow the TSC a hearing with potential candidates for the role of Chief Exec of the FCA before any appointment is finalised.  If the TSC does not approve of a proposed appointment, then the TSC can recommend that there is a vote in the House of Commons regarding that potential candidate.

In addition, any future appointments to the role of Chief Executive of the FCA will be subject to a five year fixed (and renewable term), although, this will not apply to Andrew Bailey who has been appointed to take up the role from July 2016.

Rationale behind the new power

It has been reported that TSC had pushed for this new power following concerns as to whether (i) post-financial crisis reform has been “watered down” since last year’s general election, and (ii) the FCA has been improperly influenced by the government and the Bank of England.

Andrew Tyrie MP commented that “Parliament’s, and the Committee’s, influence over the appointment and dismissal of the Chief Executive of the FCA has been greatly strengthened by the arrangements set out in the Chancellor’s letter.  Parliament will now be better placed to safeguard the FCA from interference or the perception of interference by the Treasury or Treasury ministers“.

In a nutshell, the new power will help to ensure the independence, and legitimacy, of the future appointments of any new Chief Executive of the FCA and will prevent any perception of interference by the Treasury.