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​FCA sets out when it will investigate regulatory failure

FCA chief executive Martin Wheatley

The Financial Conduct Authority has set out how it will decide whether or not to investigate and report on possible regulatory failure.

As the FSA, the regulator published three reports looking at the extent of its failures in the run-up to and during the financial crisis: one into the failure of Northern Rock published in March 2008, one into the failure of Royal Bank of Scotland in December 2011, and a report into Libor in March 2013.

Under the new regulatory structure, the FCA is required to publish a statement of policy on what factors it will take into account in deciding whether an investigation into possible regulatory failure is required, and provide the Treasury with a report of it findings and recommendations to publish.

The FCA has published a paper today which sets out how it will meet the two statutory tests for carrying out an investigation. These are:

  • Where there has been a significant failure to secure appropriate consumer protection, or where a failure has had or could have had a significant adverse effect on the FCA’s integrity or competition objectives; and
  • Where events might not have occurred or the adverse effect might have been reduced but for a serious failure in the regulatory system or the FCA.

The regulator has set a threshold to trigger an investigation of £150m or more of total consumer detriment, unless the only detriment suffered is to large or sophisticated financial firms.

It says consumer detriment between £30m and £150m it will consider other factors when deciding whether to carry out an investigation into regulatory failure, such as the consumers concerned, the loss per consumer or the size of the market.

The Treasury can require the FCA to carry out an investigation where the above tests are met, or where an investigation is in the public interest.

The Treasury can also direct the FCA about the scope of an investigation, how long it should be carried out for, the way it is carried out and the follow-up report.

Reports must set out the result of the investigation, the lessons the FCA should learn, and any recommendations.

FCA chief executive Martin Wheatley says: “A regulatory system that removed all risk would be prohibitively expensive and could stifle innovation and competition.

“The instances where we investigate and report to Treasury will be significant events and serious failures, when things have gone badly wrong, and this paper sets out how we will identify and deal with these exceptional cases.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Looking at that criteria he should start by investigating the last 10 years of the FSA.

  2. Yet again I ask you to re-arrange the following words to make a statement. ” Door shutting bolted horse after the stable the has.” Trick one eh?

  3. It would seem that another significant regulatory failure is not to be included KeyData

    For trancparancy they need to consider any failings and consider how this has impacted on clients, if its own integrity is to meen anything.

  4. Put it another way. Lets look at their successes…erh. Still thinking and don’t know of any

  5. Will the destruction of the IFA sector as a result of over-regulation be classified as a significant event and/or a serious failure? Or will we be deemed to be insignificant and therefore not worthy of serious consideration?

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