The Treasury committee has highlighted the failure of mini-bond provider London Capital and Finance as an example of the need for “further action” as it recommended the FCA be given “more formal powers”.
In a report on the FCA’s perimeter of regulation published today the committee branded the current “ad-hoc” system which relies on an “informal relationship” between the Treasury and the FCA as “inefficient”.
It recommends the FCA should be able to formally recommend to the Treasury changes to the scope of its regulation to enhance its ability to meet its objectives, particularly to prevent consumer harm.
And it says the FCA should set out any costs, both to firms and consumers, from such a move at the same time.
The committee outlined the concerns around the actions of RBS Global Restructuring Group, mortgage prisoners and the failure of London Capital and Finance as examples it has seen of the need for further action.
Such a process would provide greater transparency and focus, according to the MPs.
The FCA has welcomed the recommendations to tackle the “complexity” of the current system.
A spokesperson for the regulator says: “This report rightly highlights a number of cases where members of the public have suffered significant harm and have not had the protections they think they are entitled, because of the complexity of the legislative framework for regulated activities.
“This complexity is an issue the FCA has raised over a number of years, so we welcome this report which is an extremely useful contribution to that debate and we look forward to working with parliament, Treasury and others to examine the recommendations.”
The committee acknowledges that the perimeter of regulation appears to be “confusing” for consumers of financial services and it suggests some firms may “deliberately game” the perimeter to undertake regulatory arbitrage.
It says care needs to be taken where regulated financial institutions are undertaking an activity that is unregulated.
“Often the realisation that an activity is unregulated comes only after problems emerge, and the regulator’s lack of power becomes apparent to those affected,” the report states.
It adds: “The FCA has made recent efforts to monitor the perimeter, most recently via the analysis published in its perimeter report. Its warnings on the potential harm to consumers at, and beyond, the perimeter must be heeded.”
In future the FCA must not be or feel constrained from providing warnings on financial products that may cause consumer detriment.
“The FCA should be given the remit to highlight the risks faced by financial services consumers including where an activity is beyond the perimeter of regulation. This should be written into the relevant primary legislation, and include any necessary powers needed to fulfil that remit.
“This would allow the FCA to identify and provide clear warnings about products and activities that might pose risks to consumers, without fear of breaching its remit. In providing such a remit, the government should ensure that the FCA has the power to act swiftly and without undue restraint as it sees risks arise,” the committee says.
The Treasury is considering the wider scope of financial regulation, including potential action to improve coordination between the regulatory authorities.