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A government plan to deregulate the City of London and foster a post-Brexit ‘Big Bang’ will trigger a battle this week with the Bank of England, which is seeking to defend high standards and its regulatory autonomy.

A radical Financial Services bill, drawn up by former chancellor and Tory leadership contender Rishi Sunak, will be published on Wednesday. It will pave the way for ministers to be able to “call in” regulatory decisions made by the BoE that they do not like.

Nadhim Zahawi, who succeeded Sunak as chancellor this month, will endorse Sunak’s plan for a more “growth-focused” approach to City regulation in his Mansion House speech on Tuesday.

Boris Johnson, outgoing prime minister, is said by allies to be particularly “impatient” with regulators following their resistance to reforms to the EU’s so-called “Solvency II” regime, intended to loosen capital rules for insurance companies to release cash for infrastructure projects.

Pro-Brexit politicians including Johnson, Sunak and Zahawi believe that sweeping away EU rules governing the City will create a “nimble” new regime and unlock funds for investment. But Andrew Bailey, BoE governor, wants to ensure it does not increase risk.

Sunak set out his approach in a “Brexit manifesto”, talking of a “Big Bang 2.0” which would “help investors and insurers put money into assets like infrastructure that stimulate growth and will reap long-term rewards”.

He said: “We will finish the job of ending the EU system where ultimate power lies with faceless regulators and vest that power in our sovereign parliament.”

Bailey is resisting what he regards as meddling by ministers. “Bailey isn’t too happy,” admitted one senior government official involved in drawing up the new regime.

Bailey this month told MPs at the Treasury committee that he opposed any changes that would undermine the stability of financial regulation. “The independence of the regulators is important because much of our international standing depends on this,” he said.

Regulators have been given a new secondary objective of promoting “growth and competitiveness”, alongside ensuring companies are safe and financial stability is maintained.

But it is the “call in” powers in the Financial Services bill which have created the biggest concern at the BoE — Bailey fears regulators would constantly have politicians looking over their shoulder.

One senior official close to the tense negotiations between the Treasury and BoE said the “call in” powers would only be used “in exceptional circumstances”.

The official added: “All regulators want to be unaccountable. We are not talking about over-ruling them, but asking them to look again at something. The alternative would be that we just pass primary legislation to require them to do something. We are trying to avoid that.”

The Treasury told the FT that the legislation would “enhance the competitiveness of UK financial services by supporting the effective use of capital to boost economic growth and jobs”.

A spokesman added: “We are working closely with the regulators to deliver a new, coherent and agile regulatory regime that seizes the benefits of Brexit to deliver for individuals and businesses.”

The new rules follow protracted wrangling between the government and the BoE’s Prudential Regulation Authority, which has warned that reforms to Solvency II — which would release some capital and loosen the rules on where firms can invest — cannot be a “free lunch” for insurers. It argues the regime must be tightened in other areas to protect policyholders.

But City of London executives have grown increasingly frustrated with what they see as a slow and overly cautious approach taken by the financial regulators since Brexit.

One senior executive said: “The regulators here appear to be growing more European with every day. The slowness and caution are not helping the industry at all. They are taking a line by line approach. the expectation had been that the UK would take a far more free market approach.”

One said that having a “call in” option could see the government intervene where regulators were dragging their feet, saying that “if regulators are not nimble or innovative then they should be pushed to be so”.

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