Executive summary
The ability of firms to effectively challenge regulatory decisions on rule-making and rule application is a key part of holding regulators properly to account. Whilst there are existing review mechanisms in place for firms such as the ability to seek judicial review through the courts, some features of these mechanisms may currently be operating as a barrier to access.
We have been working with UK Finance and its members to support its response to HM Treasury’s (HMT) phase-II consultation of its Financial Services Future Regulatory Framework Review (FRF Review). The proposals put forward by HMT envisage the responsibilities of the regulators expanding as a result of leaving the EU and any such expansion will need to be balanced by effective accountability arrangements to engender confidence not only in the regulators themselves, but also in the wider UK regulatory framework.
Our work with UK Finance has identified seven key principles that might inform the design of a more effective review mechanism for in-scope regulatory decisions. The report which we contributed to is here.
The current review mechanisms
There are currently several mechanisms through which firms can influence policy development by regulators and several different avenues to interact with regulators to advance concerns about the imposition of new rules or the application of existing rules. One of the principal ways in which firms can currently challenge regulators in relation to these matters is through a formal judicial review of decisions. However, this has been seldom used in recent years. There are a number of features that may be the reason for this, including narrow grounds of challenge, the relatively high cost of challenges and the length of the process.
In addition, the perceived risk of jeopardising the supervisory relationship with a regulator appears to be a key barrier to firms considering bringing a challenge. There is evidence of a perception by certain firms that such challenges may well have negative repercussions for them in the future. The potential reputational risk may also act as a barrier. At present, the relative rarity of such challenges means that any that are made will inevitably be high profile, and the firm bringing them may face a distracting and counterproductive level of publicity.
The principles
A more effective review mechanism, addressing these concerns, could be a useful tool for both market participants and regulators. It could support the agility and the responsiveness of the UK’s regulatory framework and encourage further rigour in regulators’ rule-making processes. Our work with UK Finance has identified seven key principles that might inform consideration of such a mechanism. At a high level, these principles are:
| Principle 1 | Engendering confidence – not only in the process itself but also in the wider regulatory framework. |
| Principle 2 | Skills and experience – entailing the requisite skills and experience to provide effective challenge to regulatory decisions. |
| Principle 3 | Onward appeal – how any mechanism will fit within the overall justice system including the availability and extent of any onward appeal to another decision-maker at a more senior level. |
| Principle 4 | Independence – the extent to which the review mechanism is demonstrably free of any conflicts of interest, perceived or actual. |
| Principle 5 | Proportionate accessibility – the degree to which the review mechanism will be accessible to all firms, not just those falling within a particular category. |
| Principle 6 | Timeliness – delivery of a decision within a reasonable period of time. |
| Principle 7 | Transparency – the appropriate level of transparency required to meet relevant objectives. |
Next steps to the FRF Review
The government has said that it will carefully consider the responses received to the FRF Review and use them to inform a second consultation in 2021, which will set out a final package of proposals. We look forward to seeing what is proposed in relation to regulatory accountability and continuing to support clients who are subject to regulatory decisions of all kinds and who have an interest in shaping the future regulatory landscape.