Question to the HM Treasury:

To ask Her Majesty's Government what assessment that have made of the size of the financial services market (1) regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), (2) to which the remit, recommendations and priorities letters sent by HM Treasury to the FCA and PRA on 23 March 2021 apply, and (3) to which the provisions of the Financial Services Act 2021 apply with respect to the requirements on the FCA and PRA to have regard to the target in section 1 of the Climate Change Act 2008.

The Financial Conduct Authority (FCA) regulates around 51,000 firms, of which around 1,500 are also regulated by the Prudential Regulation Authority (PRA). As set out in the Financial Services and Markets Act 2000 and the Bank of England Act 1998, the letters of recommendations issued by the Chancellor of the Exchequer to the FCA and the Prudential Regulation Committee (PRC) apply to the advancement of the regulators’ objectives and the discharge of their duties. As such, where relevant and practical, the letters of recommendations apply to the FCA and PRA’s policymaking in all areas they regulate.

The Financial Services Act 2021 introduced a number of different measures which are vital to enhance the UK’s world-leading prudential standards, promote financial stability, promote openness between the UK and international markets, and maintain an effective financial services regulatory framework and sound capital markets. The government’s assessment of the Financial Services Act 2021 was set out in the accompanying Impact Assessment.

Under the Financial Services Act 2021, both the FCA and PRA must have regard to the UK’s net zero emissions target when making rules that introduce the Investment Firms Prudential Regime (IFPR) and implement the remaining Basel standards as contained in the Capital Requirements Regulation respectively. This provision applies to those rules made after 1 January 2022.

As noted in the Impact Assessment for the Financial Services Act 2021, there are currently around 3,200 investment firms which fall under the IFPR. There are around 1,500 firms subject to the Capital Requirements Regulation.