Those of us who remember the passage of FSMA 2000 will remember that the action takes place towards the end of the process, and the Lords, then fearful of an over-powerful regulator, provided two safeguards against the exercise of eye-watering powers given to a non-governmental regulator.
The first was to determine procedures in relation to the giving of statutory notices to:
vary or remove permissions
withdraw or refuse to grant authorisation
withdraw or refuse to grant approval of individuals0
fine or censure firms and individuals
Procedures had to ensure that decisions are “taken by a person not directly involved in establishing the evidence”. This separation requirement led to today’s familiar regulatory decisions committee. The current enforcement process works well and is one which the FSA’s recent paper, Journey to the FCA, suggests will pertain for the time being.
Attempts in Parliament, which Apfa strongly support, to give the RDC a statutory footing have been resisted by the Treasury, being incompatible with “judgement-based supervision”. Consequently the current bill (Schedule 9) amends the requirement for a “person not directly involved” with the addition of “or by two or more persons who include a person not directly involved”.
So a future regulator could replace the RDC with a committee of enforcement investigators and just one unconnected person. This power to weaken proven controls is worrying.
The second was the Tribunal to whom decisions of the FSA can be referred, who can direct the FSA to uphold, amend or reverse decisions. Tribunal judgments provide a valuable body of precedents that inform the proper behaviors of firms and the regulator.
Schedule 22 of the bill seeks to limit the power and role of the Tribunal so it can only direct the FSA in respect of disciplinary cases, which are surprisingly limited to mainly fines and censures.
Importantly prohibitions, the removal of authorisation or refused applications, are not ‘disciplinary’ and the Tribunal will be restricted to considering only legal, procedural or factual matters and opining how the regulator should act. Bizarrely, the regulator will not be bound to follow the Tribunal’s judgments.
The FSA can mostly be relied on to be fair and we can challenge it if it is not; when we are told to “be afraid” and that we might be “shot first”, we take comfort that the legislators of 2000 balanced those powers with proper protection.
Is it really the case that Parliament now thinks those checks and balances caused the problems that led to this bill? I think not. The failure more likely lies with lighter-touch regulation and the infamous No. 10 speech about regulators stifling the City’s success. Government assurances that the Treasury select committee will give protection against an overreaching regulator sound hollow when it has no powers.
The bill is about tougher regulation and the checks need to be built up, not dismantled. Individual regulators are diligent and have integrity, but can innocently become immersed in the culture surrounding them, especially when stirred up by outraged politicians.
If it becomes a lot easier to prohibit someone through revised decision making, and with no fear of the Tribunal changing the decision, what hope is there faced with such outright unaccountable authority?
A wise man once gave a prescient warning about the inevitable outcome of absolute power. Parliament must ensure that the powers it is granting can be properly held to account, and legislators should consider that most carefully.
Gary Bottriell is managing partner at Bottriell Adams and deputy chairman of the Association of Professional Financial Advisers. He is also a member of the RDC and does not express the views of the FSA.