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Categories:Advisers,Regulation

How the FCA will regulate the industry: All today's news

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Martin Wheatley 480

Financial Conduct Authority chief executive designate Martin Wheatley today set out how he intends to regulate the retail financial services industry through a new supervisory regime, product intervention powers and tougher punishments.

A document, Journey to the FCA, details the scale of the changes to be introduced by a new regulator which pledges to intervene earlier to prevent consumer detriment.

The document sets out how the FCA will seek to press for tougher penalties, make senior management more accountable and continue to secure criminal prosecutions for insider dealing and market manipulation.

At a Thomsons Reuters event in London this morning, Wheatley presented plans for a tougher regulator focused less on “soapbox rhetoric” and more on competition and good consumer outcomes. Wheatley also admitted plans to reform the Financial Services Compensation Scheme have met with fierce industry opposition and suggested the scheme’s fairness needs to be “looked at very carefully.”

FCA Categories 480

Adviser firms will mostly fall into the new regulator’s C4 supervision category, coming under the eyes of a team of sector specialists rather than a single nominated supervisor.

The FSA says this means firms will have contact or a “touch point” with the regulator at least once every four years while firms deemed to be of higher-risk can expect a face-to-face interview and possibly additional supervisory visits.

A risk-profiling tool based on firm visits and Gabriel submissions will be used to help the regulator assess which firms the regulator believes present a higher risk to consumers.

The paper outlines how the regulator will measure success and sets itself eight key (and difficult to quantify) successes it will aim to achieve within its first two to three years of existence.

Flexing its product intervention muscle, the FCA has reminded product providers it expects their governance of risk to be on a par with that of vehicle-safety and over-the-counter medicine.

It adds it will intervene at the earliest opportunity if it feels consumer harm is imminent while, across the board, increasing the commissioning of skilled person reports to check for weaknesses.

It will also go further to challenge product providers on the value of their products compared to the charges and will be “ready to intervene directly by making intervention rules to prevent harm to consumers,”.

The FSA says it will evaluate the impact of major policy initiatives in an attempt to make it more accountable, provide management with information to make decisions and provide its board with information needed for effective oversight.

The FSA will set out further details of its plan for the coming year in its business plan to be published in March.

A discussion paper will be published in the first quarter of next year bringing forward FSA proposals to “embed regulatory transparency” in ways the regulator says will “lead to real benefits for consumers.”

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Readers' comments (9)

  • Whilst I welcome most of what Mr Wheatley says, I am very concerned about the idea of "increasing the commissioning of skilled person reports to check for weaknesses".

    This sounds like these might be dished out quite randomly to see what you are up to.

    A skilled persons report can cost many thousands of pounds. I trust that the FCA is going to meet the cost of these reports from its huge resources and is not going to expect the firm to foot the bill.

    For many small firms a skilled persons report is simply the same as being closed down.

    The law of unintended consequences says "May as well rip off our clients for as long as we can if a SPR is going to close us down whether we've done right or wrong".

    Can someone confirm how skilled persons reports will be funded in the future please?

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  • I agree Soren, the Devil is definitely in the detail. It's not what Mr Wheatley says but what he does that counts.

    I'm still really concerned that there is no accountability. If the FCA gets something wrong and puts me out of business can I make a claim against it for loss of livelihood?

    If the answer is no (as I suspect) I believe that regulation will continue to be as flawed as it has been in the past. Justice and fairness for all need to be a part of regulation.

    Mr Wheatley needs to understand that advisers are people too; it's not just consumers.

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  • @ Soren
    The FCA will commission it. The Firm/Adviser will pay for it.

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  • he really is saying a hell of a lot.

    why does he feel the need to sound bite every 20 seconds?

    his organisation will be as useless as its forerunner due to the simple fact that they are all the same staff.

    the RDR is a tearup - how else can anyone explain the uneven playing field post RDR.

    poss investor goes to a Bank and they say we can invest 100% plus of your money and we get paid by a marketing allowance! plus ca change. they go to a non tied advisor and hey presto transparency as well as discloure with no commission.

    I believe in transparency with clients and protecting their interests but the RDR is a partial solution at best.

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  • I am RS Rex

    I failed so they changed my name again and made me even more powerful and increasingly scary.

    I am extinct but nobody has the courage to tell me.

    Unlike all other dinosaurs I can still wipe out the weak and avoid the strong because a higher power pulls my strings.

    I am puppet.

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  • It is interesting to see that even the journalists seem to be confused, as reading the article, it is difficult to understand who is talking - Wheatley/FCA or is it the dear old FSA ( shortly to be disbanded ). Like the rest of the industry, change of those at the top and change the name.
    Oh dear, when will we ever learn??

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  • @Anonymous | 16 Oct 2012 5:49 pm

    Exactly as I suspected. I also imagine that if the Skilled Persons Report finds nothing wrong the FCA don't then cover the cost plus some sort of compensation for the time wasted?

    So you can be 'fined' and effectively put out of business for doing right as well as doing wrong.

    This is an immoral way of regulating. It should be illegal and it should be stopped.

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  • The power to initiate skillied persons reports payable by the firm, who are subject of the report, is available already. There is an amendment being debated to give FSA powers that it does not have to be directly involved in the instruction of the skilled person. Under the 1986 Act therer were powers of intervention that were used before cases were proven which led to injustices. These are sweeping powers that can be administered without check and balance. People have to lobby for checks and balances on these powers.

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  • This does appear to be a very long press conference by the FSA/FCA that actually tells us nothing that hasn't already been disclosed.

    I have to admit that the FCA does seem to talk a better game than the FSA, but at this point in time it is just talk and it'll be interesting to see how that comes through in practice.

    However, the talk from all regulators does seem to be very negative in stance - it's all about punishment and investigations. How about some word on the positive effects that they are aiming to have on the market; for consumer, adviser and provider?

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