Government outlines new regulatory objectives
The Government has proposed the Financial Conduct Authority’s strategic objective should be to ensure financial markets and the market for regulated financial services work well.
The proposals are put forward in the financial services bill, published today, which also suggests the FCA’s operational objectives should be securing an appropriate degree of consumer protection, protecting and enhancing the integrity of the UK financial system and promoting effective competition in the interests of consumers.
The PRA’s proposed main objective remains to promote the safety and soundness of firms and its insurance objective also remains unchanged giving the regulator responsibility for providing an “appropriate degree” of protection for those who are or are about to become policy holders.
Under the previous Treasury proposals the FCA’s strategic objective was “protecting and enhancing confidence” in the UK financial system and its three operational objectives were consumer protection, protecting and enhancing the integrity of the financial system and promoting efficiency and choice in the market.
In its report into the FCA, the Treasury select committee agreed with consumer groups, the FSA, the Independent Commission on Banking and the draft financial services bill committee that the objectives were flawed. The committee said the strategic objective of ensuring confidence in the markets could lead the regulator to defend “misplaced” confidence.
The TSC called on the Government to scrap the strategic objective and add a fourth objective of promoting effective competition for the benefit of consumers. It said if the Government did not scrap the two-tier approach, amending the strategic objective to “ensure fair, efficient and transparent markets” would have been an improvement.
The draft financial services bill committee’s final report said: “This would better reflect the Treasury’s intended purpose for the FCA, which is to ensure that business across financial services and markets is conducted in a way that advances the interests of all users and participants.”
In November, before the report’s release, Treasury financial secretary Mark Hoban defended the FCA’s objectives in front of the TSC. He said: “You cannot prise apart the strategic and operational objectives. The strategic objective is the umbrella statement about the role of the FCA. It is the operational objectives which give the meat to the bones and set out what the FCA will be doing.”
The draft financial services bill proposed giving the PRA’s the objective of ensuring the safety and soundness of financial institutions and the insurance objective of providing an appropriate degree of protection for those who are, or are about to become, policyholders. In November, the Association of British Insurers called for the part of the PRA’s objective to protect consumers before they become policy holders to be removed.
The detail of the proposals may change as the bill makes its way through Parliament and MPs propose amendments.