How the FCA will regulate the industry: All today’s news

Martin Wheatley 480

Financial Conduct Authority chief executive designate Martin Wheatley today set out how he intends to regulate the retail financial services industry through a new supervisory regime, product intervention powers and tougher punishments.

A document, Journey to the FCA, details the scale of the changes to be introduced by a new regulator which pledges to intervene earlier to prevent consumer detriment.

The document sets out how the FCA will seek to press for tougher penalties, make senior management more accountable and continue to secure criminal prosecutions for insider dealing and market manipulation.

At a Thomsons Reuters event in London this morning, Wheatley presented plans for a tougher regulator focused less on “soapbox rhetoric” and more on competition and good consumer outcomes. Wheatley also admitted plans to reform the Financial Services Compensation Scheme have met with fierce industry opposition and suggested the scheme’s fairness needs to be “looked at very carefully.”

FCA Categories 480

Adviser firms will mostly fall into the new regulator’s C4 supervision category, coming under the eyes of a team of sector specialists rather than a single nominated supervisor.

The FSA says this means firms will have contact or a “touch point” with the regulator at least once every four years while firms deemed to be of higher-risk can expect a face-to-face interview and possibly additional supervisory visits.

A risk-profiling tool based on firm visits and Gabriel submissions will be used to help the regulator assess which firms the regulator believes present a higher risk to consumers.

The paper outlines how the regulator will measure success and sets itself eight key (and difficult to quantify) successes it will aim to achieve within its first two to three years of existence.

Flexing its product intervention muscle, the FCA has reminded product providers it expects their governance of risk to be on a par with that of vehicle-safety and over-the-counter medicine.

It adds it will intervene at the earliest opportunity if it feels consumer harm is imminent while, across the board, increasing the commissioning of skilled person reports to check for weaknesses.

It will also go further to challenge product providers on the value of their products compared to the charges and will be “ready to intervene directly by making intervention rules to prevent harm to consumers,”.

The FSA says it will evaluate the impact of major policy initiatives in an attempt to make it more accountable, provide management with information to make decisions and provide its board with information needed for effective oversight.

The FSA will set out further details of its plan for the coming year in its business plan to be published in March.

A discussion paper will be published in the first quarter of next year bringing forward FSA proposals to “embed regulatory transparency” in ways the regulator says will “lead to real benefits for consumers.”