People in the UK financial sector are wondering if the new PM will change the regulatory landscape.

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As Liz Truss becomes Britain’s new prime minister on Tuesday, questions will be raised about her plans for Britain’s historic financial district – the City of London – as the country grapples with a deepening cost-of-living crisis and the ongoing conflict in Ukraine.

According to the Financial Times last month, the city’s regulators could be in for a big shake under Truss. It cited campaign insiders who said Truss will seek to review and possibly merge the three major London regulators – the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Payment Services Regulator (PSR).

She has also suggested reviewing the Bank of England’s mandate during her time as Prime Minister.

“Change for Change’s Sake”

The FCA regulates 50,000 firms in the UK to “ensure our financial markets are honest, competitive and fair”, according to its website. The PRA, meanwhile, oversees the work of around 1,500 financial institutions to “ensure the financial services and products we all rely on can be delivered in a safe and sound manner.”

Their responsibilities sound similar, but the various organizations were formed when it was decided that the Financial Services Authority, which regulated the city between 2001 and 2013, had several functions that could be better served by separate organisations.

According to Matthew Nunan, a partner at law firm Gibson Dunn and a former department head at the FCA, the original agency’s main objectives were good governance and financial soundness across the sector. He said the split in two is seen as a way to give these goals equal priority.

“The simple question that needs to be answered now is: What would the reunification of the PRA and FCA do?” Nunan wrote in an email to CNBC.

“If the answer is to reform the old Financial Services Authority, what was the question? Or is it simply change for the sake of change?”

Governments should always “challenge the status quo,” Nunan said, but argued that it was a question of whether doing so would actually better serve the “changing needs of a nation.”

“The problem here is that instead of articulating a problem and seeking evidence, the statements made seem to be proposing answers to questions that no one is asking,” he said.

Nunan also highlighted the difference between regulators and politicians, saying regulators are “never allowed” to make proposals in the way Truss has done.

“Regulators are legally required to make evidence-based decisions about rule changes [and] require a cost-benefit analysis before they can be implemented… If that applies to regulators, why doesn’t it apply to politicians?” he asked.

“Light Touch Regulatory Regime”

The “fight” to deregulate the banking sector is like “turning back the clock to the pre-2008 global financial crash,” Fran Boait, director of campaign group Positive Money, told CNBC’s Squawk Box Europe last month.

Boait said there was a risk that the country would find itself in the same situation “or much worse”.

“Liz Truss’ proposal to merge the three key city watchdogs would risk restoring this light regulatory regime — the regime we had before the crash,” she said.

She also stressed that less than a decade has passed since the organizations were founded.

“It wasn’t long ago that we put in place a much larger regulatory regime because there was a consensus that the regime contained so many risks [that] Complexity in the financial sector needs to be properly regulated,” she said.

‘ambiguity’

Discussions of a review or merger of any of London’s regulators remain speculative as Truss has yet to issue any official statements on the matter.

This is leading to a “lack of clarity” about the future status of the three regulators, according to Hargreaves Lansdown analyst Susannah Streeter.

She said improving financial services for customers should be at the forefront of any regulatory discussion.

“Whether they stay as single entities or as a merged entity, it’s really important that the UK has dynamic regulators that make the most of the Brexit freedoms,” Streeter said in an email to CNBC.

Tackling fraud, creating more opportunities for investors to invest in IPOs and how information is shared with prospective investors should be on the agenda of any proposed changes to the current regulatory regime, she added.