The FSA admits that reform of its conduct supervision is needed but warns that “a turf war” could break out if its enforcement activity is separated out among different bodies.
At a Bloomberg event in London this week, FSA chief executive Hector Sants said the regulator needs to maintain a concentrated enforcement function with clear responsibility for investigating and punishing misconduct. He said: “I strongly believe that dividing responsibility for enforcement activity would invite a fragmentation of approaches and a turf war between the different bodies involved.”
Sants warned that the FSA will increasingly use mystery-shopping to test firms and said the financial industry has failed to take responsibility for the economic crisis. He said: “There remains, I believe, an absence of the acceptance of collective responsibility for what has happened.”
Sants also admitted that the treating customers fairly regime has failed consumers.
He said: “Historically the FSA was, in practice, operating a twin peaks’ system. The oversight of the domestic institutions focused on the treating customers fairly programme.
“However, this focus has not delivered the outcomes that consumers deserve. This is because old-style consumer protection regulation is, in my view, largely reactive not proactive.”
Independent consultant Richard Hobbs says the FSA should have focused on conflicts of interest in the market rather than the fair treatment of consumers.
He says: “Sants should have admitted the FSA picked the wrong principle. It should have focused on conflicts of interest in the market. Firms should not down tools on TCF because the FSA has deemed it a failure. They have better reasons to continue to apply it, which are to ensure their firms remain competitive.”