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Treasury Committee publishes report into Financial Conduct Authority

13 January 2012

The Treasury Committee has today published a report into the Financial Conduct Authority (FCA) containing a number of recommendations for the Government's consideration ahead of the drafting and publication of the Financial Services Bill early in 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."

Among the Treasury Committee's recommendations are (with quotes from Andrew Tyrie): 

  1. That the Government should legislate to give the FCA a primary objective to promote effective competition for the benefit of the consumer. This is closely in line with the thinking of the Independent Commission on Banking and the Office of Fair Trading.
      "The Government must put competition at the heart of the new regulatory framework."
    • 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."
      • 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."
        • 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."
          • 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."

            Background

            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.  

            June 2011

            The Treasury published a draft Bill, largely consisting of proposed amendments to FSMA, the Banking Act 2009 and other statutes.  

            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?

            October 2011

            The Treasury Committee wrote to the Chairman of the Joint Committee appointed to conduct pre-legislative scrutiny of the draft Financial Services Bill, the Rt Hon Peter Lilley MP, to emphasise the importance of the two Committees reinforcing each other’s efforts.                            

            October 2011 – December 2011

            The Treasury Committee held four evidence sessions as part of its inquiry:

            25 October 2011

            Representatives of firms which will be regulated by the FCA: Angus Eaton, Operational and Regulatory Risk Director, Aviva Plc, Paul Killik, Senior Executive Officer and Partner, Killik & Co, and Philip Warland, Head of Public Policy, Fidelity Worldwide. 

            1 November 2011

            The Financial Services Authority: Lord Turner, Chairman, Hector Sants, Chief Executive, Martin Wheatley, Managing Director, Conduct Business Unit and CEO-designate of the FCA, Margaret Cole, Managing Director, Enforcement, Financial Crime & Markets.

            2 November 2011

            Consumer representatives: Peter Vicary-Smith, Chief Executive, Which?, Christine Farnish, Chair, Consumer Focus, and Gillian Guy, Chief Executive, Citizens Advice Bureau. 

            8 November 2011

            Mark Hoban MP, Financial Secretary to the Treasury and Emil Levendoglu, Deputy Director, Financial Regulation Strategy, HM Treasury. 

            December 2011

            The Joint Committee published its report. 

            January 2012

            The Treasury Committee publishes its report.

            The report opens with a section describing how the FCA fits into the proposed regulatory structure, and also considers the objectives of the FCA. It reviews the proposed lines of accountability for the FCA and makes recommendations on how these might be improved. It outlines the FCA's place in the wider regulatory architecture before considering and making recommendations on the practicalities of the FCA (including its approach to supervision, staffing and coordination with industry). Finally the Committee reported on the proposed new powers of the FCA including early warning notices and product intervention and discusses the possible pre-approval of some financial products. 

            This report forms a part of the committee's long-running work on the new regulatory architecture, which includes its Report of February 2011, Financial Regulation: a preliminary consideration of the Government’s proposals, and its Report of November 2011, "Accountability of the Bank of England".

            Further Information

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