The UK government is seeking to avoid a clash with the Bank of England by playing down the threat of prospective new powers for it to intervene in regulators’ decisions, according to two people familiar with their conversations.
The Treasury is likely to propose a rule that would allow ministers to block or change regulators’ plans in draft legislation to be published today. However, it may recommend a consultation about when the power could be used and how it would be enacted, the people said, asking not to be named discussing private consultations.
Reports of a “call-in,” giving ministers the right to change regulatory policy, have triggered concern among senior figures including Bank of England governor Andrew Bailey and Sam Woods, chief executive of the Prudential Regulation Authority, the people said.
Bailey will stress the importance of the central bank’s independence in a speech at the Mansion House in the City of London.
“The regime, founded on central bank independence, is now more important than ever,” he is set to say, according to a transcript of his remarks released by the BoE. “The worth of any regime is tested in the difficult, not the nice, times.”
The UK hasn’t significantly diverged from the bloc on financial services since voting to leave the EU more than six years ago. Boris Johnson’s government, under increasing pressure to demonstrate Brexit benefits, had been racing to showcase its plans to boost the City of London by publishing new financial services draft legislation. 
John Vickers, the architect of Britain’s post-financial crisis reforms to make banks safer, said he was concerned at recent reports.
“It is hard to see how a regulator subject to a ministerial call-in power relating to its own duties could be considered to be an independent regulator,” said Vickers, who is now a warden of All Souls College at Oxford University. “Dilution of UK regulatory independence would be a curious advert for Brexit.” 
Drafting of the Financial Services and Markets Bill has continued in the past few days as the government looks to reconcile arguments about a potential ‘call-in’ power so that it can publish the new framework before Parliament’s summer recess on Thursday. 
It is set to be the most significant overhaul of City of London rules for decades, aimed at slashing unnecessary rules and boosting the UK’s competitiveness after leaving the European Union. Still, the recent turmoil in the Conservative Party has prompted the government to commit to avoid making any significant economic decisions during the ongoing transition to a new prime minister, who is due to be in place by September.
UK Chancellor of the Exchequer Nadhim Zahawi will pledge a “coherent and agile approach to financial regulation” in his own speech at Mansion House, with details to follow in the bill regarding how rules will be made simpler for banks, insurers and asset managers.
Britain’s exit from the European Union led to the body of EU law being transferred to the UK’s statute book, with the government now tackling which rules to keep and which to change to hone the system to suit the country’s economy. 
As a part of the shift, British regulators are set to take on responsibility for policies that were previously decided by EU politicians. That has prompted British politicians to call for new checks in UK rules to ensure democratic oversight of regulators. 
One area where a government veto could be used is over plans to liberalise EU capital rules for insurers known as Solvency II. 
Insurers want the PRA to go further than it has said it will, and have won the backing from some in the Treasury, according to people with knowledge of the matter. The topic could become an early focus for the use of a government veto, those people said.
That’s stoking fears among some regulatory lawyers and officials that the oversight could spill over into inappropriate interference by politicians, potentially following lobbying from companies or special interest groups, to make changes.
Other City figures are more sanguine.
“My sense is that the Treasury are conscious of the need to tread carefully with innovations such as call in powers,” said Miles Celic, chief executive officer of lobby group TheCityUK, which represents financial and professional services firms. “I don’t expect they’ll be using them wantonly but having them in the toolkit is useful.”