We consider there is merit in uplifting the drafted principle to be a secondary objective, with the same status of the FSM Bill’s proposed growth and international competitiveness secondary objective, which may:
- Have greater impetus for the regulators to integrate net zero on a day-to-day basis in their range of activities across rule-making, supervision and enforcement.
- Ensure the future of the UK regulatory regime has the green agenda embedded in it on a stronger legal footing as an objective, rather than as a principle. Under the FSM Bill, the regulators are intended to have an increasingly important role with drafting initial rule changes to the UK’s regulatory regime for consultation. With a climate-related net zero secondary objective there would be a stronger driver for the green finance agenda to be actively pursued by the regulators, as required with objectives, in their new rules proposed.
- Ensure regulators would be held accountable for the transition to net zero with a statutory objective as the regulators report to Parliament on how that duty has been discharged. There is no such accountability or reporting with regulatory principles.
- Provide more certainty to financial services providers that the regulators were focusing on climate-related matters throughout their actions, regardless of any political will at a given time which the regulators currently heavily lean on for their ESG Strategy.
- Align with other international regulators, such as the AMF in France that already has a statutory objective linked to climate.
If there is an uplift of the consideration of climate change to objective status, then there would be the check and balance of the consultation made by the regulators in relation to the rules they are proposing. This should help significantly mitigate concerns of any negative unintended consequences of climate-focused financial services regulatory rules.
The FSM Bill was introduced into Parliament the day before the summer recess began, so there is now a wait until 5 September for the announcement of the new Prime Minister and for Parliamentary debate on the proposals to begin. Until that time the direction of travel for any updates and amendments to the FSM Bill, including with regards to climate change, is unknown but we continue to liaise with financial services entities for their feedback and expectations of the FSM Bill.