The new financial regulator being established in Britain, the Financial Conduct Authority (FCA), Monday set out its plans to embrace a new, more activist approach to regulation.
The FCA, which is being created out of the UK’s Financial Services Authority (FSA) and is due to start operations in April, published a business plan and risk outlook, noting that in the year ahead it plans a renewed focus on consumers; tackling market abuse by taking strong enforcement action; building a new competition department to embed competition analysis in its work; continuing to address ongoing misconduct, and taking on existing major policy initiatives.
It said that the main risks for the coming year are: firms not designing products and services that respond to real consumer needs, or are in consumers’ long-term interests; insufficient transparency for consumers; inadequate oversight of payment and product technologies; shifts toward more innovative, complex or risky funding strategies or structures that lack oversight, posing risks to market integrity and consumer protection; and, excessive consumer risk taking due to poor understanding of risk and return and the intensified search for yield.
The FCA said it will take a risk-based approach to supervision, that it will be much more proactive than the FSA, and that it will focus on issues that have wider, longer-term effects on consumers and market integrity. The new regulator will employ almost 3,000 people, and plans to spend £445.7 million in 2013-2014.
“Firms need to ensure that they are putting the consumer and the integrity of markets at the heart of their business models and strategies. This includes making cultural changes which promote good conduct; establishing oversight around the design and innovation of products and services; and ensuring they are transparent in their dealings with consumers,” said the FCA’s chief executive, Martin Wheatley.
“We are introducing new approaches to the way we do much of our work, becoming much more proactive and consumer focused. A risk for all regulators is becoming bound to conventional thinking. That is why the new regulator will be much more transparent, so we can learn from our mistakes. There is no room for the poor behaviour of the past. We will take action early and decisively when we see evidence of poor practices,” he added.
Separately, the FCA set out its approach to emergency product intervention today, which is a new power that will allow it to restrict or completely ban products that it deems as too risky. Temporary product intervention is a process that will allow it to make emergency rules to protect consumers without public consultation. This would occur in circumstances where the FCA identifies a significant risk to consumers which requires prompt action.
In practice, the rules will allow it to take action such as restricting the use of certain product features, requiring that a product not be promoted to certain types of customers, or requiring that a product not be sold altogether. It says it would consider these sorts of actions in instances where: complex or niche products are sold to the mass market; a non-essential feature of a product seems to be causing serious problems for consumers; and, products that are inherently flawed. These sorts of rules would expire after 12 months and could not be renewed, but would give the FCA time to either consult on a permanent remedy, or resolve the problem another way.
“The creation of the FCA is our opportunity to reset conduct standards. This power, along with our other new powers, helps define how we will regulate going forward,” said Wheatley. “We know that some in the industry are concerned about us using this power too hastily; I want to be clear that we know proportionate judgement is needed, and that is what we will exercise. I do not expect us to use this power frequently, but both industry and consumers need to be clear that we will not hesitate to use these powers where we have serious concerns.”