FSA publishes further details of proposed approach for the Financial Conduct Authority
The FSA has published details of the proposed approach to be taken by the Financial Conduct Authority when this takes on the responsibility for consumer protection at the end of 2012. Government has previously set out its intention for the FCA to have new powers which will allow it to intervene more strongly in retail financial services markets, for example by providing it with a power to ban ‘toxic’ products to prevent consumer detriment. The new document sets out a number of key commitments as follows.
Take preventative action
The FCA will intervene early in relation to products where the risks are likely to outweigh the benefits the products will bring, considering factors such as the number of consumers and the amount of potential loss. In addition, where the FSA has typically allowed firms to continue to market and sell products alongside programmes to remedy poor practices, the FCA may not. When the firm is a major supplier of a product which is commonly sold to consumers, the consequences of such action, which could disrupt consumer choice or access, will be weighed against the benefits of preventing further consumer detriment. While this would be new in the UK, other regulators have taken this approach. In 2010, for example, the Japanese Financial Services Agency banned a firm from advertising or selling retail products for a month.
The document also reiterates the FSA’s previous commitment to potential use of price capping powers in respect of markets which are uncompetitive and where prices are excessive.
Address the causes of consumer detriment
The FCA will base its regulatory interventions on a deeper understanding of underlying commercial and behavioural drivers and the often multiple causes of poor outcomes for consumers. This will involve analysis of often complex chains of interaction, for example by looking at how wholesale capital markets drive the development of products which cause consumer detriment.
Take a differentiated approach
The FCA will tailor its approach and the use of its regulatory tools, to the particular risks in the sectors, firms and products which it regulates. The emphasis will be more on thematic work, targeting product services and practices which have the potential to cause consumer or market detriment, than on firm-specific risk. The emphasis, however, will continue to be on intensive, institution-specific supervision for those institutions that individually can cause significant consumer or market detriment.
Engage with retail customers
The document sets out a welcome commitment that the FCA will focus on reducing and preventing consumer detriment in the retail sector. It will be committed to a better understanding of consumer behaviour, consumer needs and consumer experiences – for example, through extensive market research – and to building the consumer perspective into all its work.
Enforce effectively
The FCA will build on the FSA’s credible deterrence strategy which involves:
- The use of higher penalties
- Bringing criminal prosecutions
- Focusing closely on the responsibility of individuals; and
- In the area of consumer protection, holding firms to account for misconduct and requiring them to make good on the losses they cause consumers.
Be transparent
The FCA will build on the FSA’s approach to consultation as part of the rule-making process and will seek to develop more effective ways of getting feedback on proposals, including from consumers and their representatives.
The FCA will engage actively with the four statutory panels which it will be required to put in place – representing the views of consumers, regulated firms, smaller regulated firms, and market practitioners.
The FCA will also publish more information about its views on markets (key trends, products and services) and the comparative performance of a firm.
Next steps
The full document can be obtained here and the FSA is inviting comments on this by 1st September 2011.
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