Treasury Committee publishes report into Financial Conduct Authority (12/03)

26 January 2012

Background and Introduction:

July 2010

HM Treasury opened a public consultation on its proposals for "A new approach to financial regulation". Amongst its proposals was the creation of an independent conduct of business regulator, now renamed the Financial Conduct Authority (FCA), which will ensure that business is conducted in such a way that advances the interests of all users and participants of the UK financial sector.

February 2011

The Treasury Committee made preliminary recommendations on the Government’s proposals that included: emphasizing the importance of making definitions clear for regulators; making competition a primary objective for the FCA; ensuring that all the objectives and remit for the FCA were clear; and enhancing transparency and coordination when regulators use their powers.

September 2011

The Treasury Committee announced an inquiry into the Financial Conduct Authority.

Among the questions posed were:

. Are the objectives of the Financial Conduct Authority clear and appropriate?

. Does the FCA's approach to regulation, as outlined in the Financial Services Authority’s June 2011 document, represent an improvement on that of the FSA?

. To whom should the FCA be accountable? Are the lines of accountability clear?

. Are the powers of the FCA suitable? Will the exercise of FCA powers be subject to appropriate scrutiny? How should the FCA be interacting with industry as well as using its intervention powers? How should the FCA be interacting with other domestic regulators and agents? How should the FCA be interacting with international regulators?

On the 13^th January this year the Treasury Committee published a Report into the Financial Conduct Authority. The Report contains a number of recommendations for the Government’s consideration ahead of the publication of the Financial Services Bill early this year. (2012)

Comments from the Chair

Commenting on the publication of the report, the Chair of the Treasury Committee, Andrew Tyrie MP, said:

"We need a fresh approach to regulation. The plain fact is that the FSA did not succeed in protecting consumers from spectacular regulatory failures. The mis-selling of PPI and endowment mortgages are just two examples. The FSA is not only expensive, for which the consumer always pays, but many have told us that it has also become bureaucratic and dominated by a box-ticking culture. The creation of the FCA is an opportunity to create something much better. If we are not careful, the FCA will become the poor relation among the new institutions. But it is the one that will matter most to millions of consumers."

The Recommendations of the Committee

. That the Government should legislate to give the FCA a primary objective to promote effective competition for the benefit of the consumer.

. "The Government must put competition at the heart of the new regulatory framework." Andrew Tyrie Committee Chair

. That the FCA develops far more reliable estimates, in collaboration with the industry, of its own cost effectiveness.

. "The cost-benefit analysis done at the moment has been variable in quality and effectiveness, to say the least. Something much better can and should be done. It can be one of the best ways of protecting the consumer from ever-rising fees." Committee Chair

. That the Government differentiates between retail and wholesale consumers.

. "The FCA will have to protect a wide range of consumers; the Government’s legislation should reflect this. The level and type of protection required by an individual investor will often be inappropriate for a major financial institution." Committee Chair

. That both the FCA and the financial services industry make better efforts to communicate with each other.

. "Too often we’ve heard that the FSA is aloof and unapproachable and that, in any case, firms are nervous about approaching them - we must break with that culture. Encouraging a greater level of engagement between firms and the regulator is in the consumer interest." Committee Chair

. That the current legislative proposals be revised to ensure that the FCA is properly accountable to Parliament and that tools are available to enable the required level of explanation from the regulator.

"A higher level of accountability to Parliament can help provide better quality regulation and avoid the problems that have plagued the FSA in recent times." Committee Chair.

See the Report here.

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