The Investment Management Association says the Financial Conduct Authority’s new powers to ban products and withdraw financial promotions will not prevent failures such as Keydata.
The Treasury consultation on the new financial regulatory framework says the FCA should have the power to ban products for up to a year and stop products achieving volume sales where the regulator identifies a serious problem with a product or product feature.
It also proposes the FCA should have the power to direct a firm to withdraw or amend misleading financial promotions and publish its actions in this area.
In its response to the Treasury consultation paper, the IMA argues that the regulator already has existing powers to vary a firm’s permissions to carry out regulated activities, which could have prevented Keydata sales. It says: “This is not an issue principally about the failure of design of powers, but of execution.”
The IMA says in the case of Keydata, the underlying product was Luxemourg-based Life- mark bonds, which may be outside the FCA’s reach.
It says: “The products involved in those cases have not been UK-based, so a new product intervention power might not be able to be used.”
The IMA also questions how the power to withdraw misleading financial promotions would have applied to the Keydata investment plan brochures distributed to IFAs.
The IMA says: “Is it expected that Keydata would have immediately contacted all IFAs and told them to discontinue using the brochures or would each IFA have been notified individually of the decision by the FCA?
“It is critical to ensure these powers will work in practice for issues such as Keydata which is one of the largest non-bank failures, measured by loss compensated, in the FSA period.”
Paladin Financial Services managing director Tim Purdon says: “If the powers that are envisaged would not have stopped Keydata from happening, then we need to look at them again. We must learn from our past mistakes, otherwise there is no point to reform.”