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UK Update - FSA publishes further details of proposed approach for the Financial Conduct Authority and Government consults on radical proposals to simplify the consumer protection landscape.

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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Government consults on radical proposals to simplify the consumer protection landscape

The Department for Business, Innovation and Skills has launched a consultation (through to 27th September 2011) on its proposals to reform the provision of consumer information, advice, education, advocacy and enforcement. The proposals are aimed at simplifying the ‘complex landscape’ of public, private, and voluntary bodies which currently provide services to help consumers become aware of and enforce their rights by focusing public spending on Trading Standards and Citizens Advice, and involve the apparent abolition of the Office of Fair Trading, which will be merged with the Competition Commission into the new Competition and Markets Authority, and Consumer Focus.

Citizens Advice

The Government proposes that ‘almost all’ of its funding for consumer information, advice, advocacy and education will transfer to Citizens Advice and that Consumer Focus will be abolished. The exceptions are in respect of financial services, where the Money Advice Service has responsibility, and health matters. In addition, BIS recognises that it may need to establish a separate ‘regulated industries unit’, which takes on the responsibility to advocate on behalf of specific customer groups, for example in respect of rail passengers, energy and postal services, it is also keen to consider whether or not Citizens Advice could take on these functions. Should such a change be made then Government would also look at the transfer of ‘appropriate powers’ to Citizens Advice to allow it to ‘ask for information and rights to be consulted by regulators, and the Citizens Advice service would have to be publicly accountable for the use of those powers’.

Trading Standards

Government recognises that funding for local Trading Standards services is currently under pressure as a consequence of its efforts to reduce the deficit, and that local government funding for Trading Standards activity is expected to decline from an estimated £213 million in 2009 to an estimated £140 –170 million in 2014. However, it also considers that the service also needs national leadership and co-ordination. To address these issues, BIS proposes to establish a new Trading Standards Policy Board (‘TSPB’), made up of Chief Trading Standards Officers, with a brief to identify national and cross boundary threats. The TSPB would be provided with dedicated funding which would allow it to address these, for example by establishing regional teams or by channeling this to further support the work of local authority teams with specific expertise, which would lead on issues nationally. The consultation document appears to indicate that future funding for the Illegal Moneylending Teams could be chanelled through the TSPB. Political accountability for the TSPB would be through the Local Government Group.

Competition and Markets Authority

The CMA, to be created from the merger of Office of Fair Trading and Competition Commission functions, would be responsible for investigating and tackling enforcement in markets which have structural problems, although Government recognises that there would need to be arrangements in place to share information concerning causes of consumer detriment between Trading Standards, Citizens Advice, and the CMA. Powers to make supercomplaints to the CMA would be retained by existing agencies, for example by Which?, but the CMA would not retain the OFT’s existing role to approve consumer codes of practice.

The full consultation document can be obtained here.

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ID: 47478
Publication date: 28/06/11

Created: 28/06/11. Last changed: 28/06/11.
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