The Financial Conduct Authority will have powers to ban products for 12 months and be able to disclose warning notices of disciplinary action.
The Government’s latest consultation document, A new approach to financial regulation: the blueprint for reform, released this morning, also confirms the intention for the regulator to be able to take “credible and effective” action against misleading financial promotions.
The proposals were included in previous consultation documents but this paper sees them come closer to implementation due to their inclusion in a draft bill which amends the Financial Services and Markets Act 2000. The draft bill which will undergo 12 weeks of pre-legislative scrutiny which the paper says is expected to start before the parliamentary recess in mid-July.
The regulator will have to consult and publish a statement of policy laying out the circumstances under which it may make temporary product intervention rules – including banning products – which will last 12 months and allow it to judge consumer detriment caused by the product. The rules will not be able to be renewed without another consultation.
The draft bill confirms the regulator will have the controversial ability to publish warning notices about firms and individuals which signal the start of enforcement proceedings. At the time Aifa warned the new powers could signal “a worrying shift towards guilty until proven innocent”. FSA figures reveal nearly a third of enforcement cases in 2009/10 did not result in disciplinary action.
The Government says the regulator will have to decide whether publishing the early action would be unfair on the person or company involved.
The Financial Ombudsman Service will be given the power to publish individual determinations which it has not been able to do in the past.
The paper also increases the estimated cost of the regulatory changes on regulated firms from between £50 and £60m to as much as £100m. It says the revision is due to evidence from “a small number” of dual-regulated firms told them the costs would be higher than previously estimated.
It adds that the majority of firms will be regulated by either the Prudential Regulation Authority or the Financial Conduct Authority and that the transitional costs for those firms is expected to be “negligible”. The estimated cost to the taxpayer for the switch remains unchanged at up to £175m.
The paper rejects calls from the Treasury select committee for the FPC to have promoting competition as its primary objective. Instead the regulator will have a duty to carry promote competition unless it requires action which runs counter to the primary, strategic objective of protecting and enhancing confidence in the UK financial system.
It will also have three operational objectives to consider: securing an appropriate degree of protection for consumers, protecting and enhancing the integrity of the UK financial system and promoting efficiency and choice in the market.