MPs were told by FSA chief executive Hector Sants there is a danger of risk being pushed out of the banking system and on to consumers.
Sants outlined possible consequences of the current regulatory focus on driving down risk in the banking sector. He said: “One of the consequences could well be to push risk out of that aspect of the system, not just into the shadow system but out of the system altogether, so you can then push risk effectively on to the consumer.
“I do not think it is happening to a significant degree at the moment but logically that is a potential area of future risk we need to be very careful about.”
Sants used the example of exchange traded funds potentially moving leverage from “managers of risk” in institutions to the consumer. He said: “The risk is the leverage moves out of the visibility of the regulator from the point of view of regulating the manufacturers of product into the consumers of product.”
He said if the CPMA inherits the FSA’s toolkit, it will not have the tools to deal with the risk. He said: “If you want a genuinely interventionist CPMA which is seen as powerful, then it needs the power to make executively-driven, direct interventions to ban products.”