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FCA facing regulatory ‘overload’, Treasury committee chair warns

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Treasury committee chairman Andrew Tyrie has warned the FCA and the Bank of England are facing “overload” and says regulators could be powerless in preventing the next financial crisis.

Speaking during a debate on the Financial Services Bill on Monday, Tyrie said the Government’s legislative agenda – including the pension freedoms and the introduction of the senior managers regime next month – is placing “huge demands” on both the Bank and the FCA.

He said: “We may be close to the point of regulatory and supervisory overload. By that, I mean that the Government and Parliament could be raising expectations of what they can achieve to a point where they will never be perceived to have succeeded.

“We need to ask just how much national regulation can achieve in an open financial world. The truth is: perhaps not that much, and certainly less than many people think.”

Tyrie added that policymakers “probably cannot stop the next financial crisis”.

He said: “The best we can hope for is to delay it, to reduce its impact by developing somewhat stronger institutions, including financial institutions, and to give us a better prospect that regulators are a bit more alert and prepared than they were in 2007/08.

“In the long run, competition must take more of the regulatory strain. In markets for most products and services, customers can vote with their feet and barriers to market entry are tolerably low.

“Businesses with weak balance sheets or poor customer standards go to the wall. Neither of those is yet the case in banking. We are a long way from the point where competition can be a full substitute even for conduct regulation in banks, and the contagion risk inherent in the banking system would make supervisory withdrawal and reliance on market disciplines even more hazardous.

“Until competition is much stronger and market discipline more of a restraint, there will be no substitute for a strong and sometimes interventionist Bank of England and an effective conduct regulator.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Appropriate and targeted prioritisation of how resources are allocated perhaps? Given its long established and truly shameful history of failures to identify and avert a succession of calamitous train wrecks and motorway pile-ups, the FCA could certainly do worse than give this strategy a go. One wonders how it can possibly have failed to think of such a fundamentally obvious idea. Maybe they did but decided: Na, we’ll keep on doing it our way, we’re bound to get it right eventually if we keep ratcheting up our budget year after year.

  2. Libertatem’s previously mooted objective of having a separate regulator for advisers would solve a number of the problems leaving a separate body to deal with non-adviser matters.

    We continually hear that the FCA needs greater resources but let’s not forget the last reported year they used £91.6m of stakeholders funds on IT support as well as £41.6m on professional fees. A more judicious use of resources would enable them to better balance obligations and preferences.

  3. The real threat to advisers is the Financial Ombudsman Service, who continue to apply their own retrospective and subjective interpretations of the vast number of ‘regulations’ in what appears to be highly biasd attempt to find in favour of consumers.
    And with the massive proliferation of so called Claims Management Companies (CMCs), who are now moving on from PPI claims and into “have you ever been sold any investment – then we will get you compensation” being actively promoted on a national basis: the cost of managing these complaints in accordance with the FCA rules will soar, and the majority of IFAs will not have the resources needed to properly defend themselves.
    Many CMC sponsored complaints will be meritless, vexatious, and a ‘try-on’, but will nonetheless need to be dealt with. This is very expensive and massively time consuming.
    As a consequence, many claims will succeed, and the cost of ‘compensation’ awarded by the FOS will fall on the FSCS and then on to the entire adviser community.
    Please don’t say you haven’t been warned!

  4. Yep, regulatory overload – I know just how they feel ! They’ll be using it as an excuse to justify the next demand for more money.

  5. A separate regulator for I & RFA’s is fine Alan, in principle ~ but how much would such an entity cost to create, how much would it cost in terms of yearly levies, who would run it, who would staff it, who would police it, where would it be located and in what ways would it differ from what we have now? At present, it’s just a pipe-dream without substance. The first challenge from the FCA (probably in the form of Linda Woodhall) would be: Are you looking for an easier ride? Not whilst I’ve still got breath in my body.

  6. I think Mr Tyrie gets it, he seems an honorable man and one I respect a great deal !

    He knows the FCA in its current guise is de-funked and not fit for purpose, this will only get worse, if they are allowed to continue on its current trajectory.

    He and the government need answers to the problems, as he (Tyrie) said the other day we have heard an awful lot of moaning we now need the solutions !

    One is to break the regulation duties up (as mooted by Alan above) its all about “spans of control” the FCA are busy running around trying to do and fix everything, and failing to any of it properly and therefore ending up at a place worse than what it was before.

    Two, is more to do with the FCA,s mindset currently it suffers from such a inherent prejudice and hatred at senior level (Sants babe’s if you will) they thrive in the comfort of immunity and chance to move on to cosy positions, I bet these abhorrent individuals sit at the top of Canary Towers like the gods of mount Olympia.

    Time has come, methinks for this nest of rats to be burned out and lay waste in the river below them !

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