‘Low Trust Level on Finance’ Prompts Regulatory Changes; FCA Gets Advice from FSA

Jack Humphrey, Regulatory journalist
June 29, 2011 /

The Financial Services Authority (FSA) has advised its successor, the Financial Conduct Authority (FCA), a body charged with conduct and markets regulation on how to be “tougher, bolder and more engaged with consumers.”

Under the Government’s plans, the UK’s new model of regulation will see the responsibilities of the FSA split between two new bodies. The Prudential Regulation Authority (PRA), will be a subsidiary of the Bank of England, and will supervise deposit takers, insurers and a small number of significant investment firms.

The FCA will be responsible for regulating conduct in retail and wholesale markets, and will operate with the single strategic objective of protecting and enhancing confidence in the UK financial system.

Earlier last week, the Bank of England and the FSA have set out the current thinking on how the future PRA will approach insurance regulation once it formally replaces the FSA.

In an approach document, the FSA set out how the FCA could meet its objectives when it would assume the responsibility for protecting consumers and markets’ regulation from the end of 2012.

The Government has recently published a White Paper outlining how the FCA will be more engaged with consumers and better informed about their concerns and behavior.

Specifically, the paper includes interventions in an earlier period to tackle potential risks to consumer protection and market integrity before they “crystallise”.

The FSA wants FCA to be tougher and bolder, “building on and enhancing the FSA’s credible deterrence strategy, using its new powers of intervention and enforcement.”

Hector Sants, FSA chief executive, said: “Trust in the financial services sector is at an all time low and the new regulatory arrangements provide the opportunity to restore confidence in an industry which has generated in excess of £15bn detriment over the last two decades.

Sants said the key element to restore trust in the financial industry is to improve the regulatory landscape.

“For the FCA to be successful it must have the support of society and Parliament, and its objectives and approach must be clearly understood by all,” he added.

According to Sants, the paper stimulates debate on issues regarding “finding the right balance between the benefits of early intervention and the consequent risks of reducing choice and raising costs, and also clarity regarding the balance of responsibilities between consumers and industry.”

“The FCA’s proposed approach moves the calibration of these questions in favour of more intervention but the question which needs to be answered is whether society is happy to accept the resultant costs and potential reduction in individual freedom.”

On the other hand, Margaret Cole, interim managing director of the conduct business unit, said: “We will now press on with developing our thinking on how to implement the approach set out in this document. We are clear that this will require significant investment, building on and improving what the FSA has achieved so far.

“I am confident that, if implemented, this approach will deliver significantly higher levels of protection than consumers have enjoyed over the last 20 years.”

The FSA seeks public comments on the approach document until September 1, 2011.


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