The Government’s £240m transition of the FSA to the Financial Conduct Authority and Prudential Regulation Authority will have a profound effect on the retail market.
The new powers and objectives outlined in last week’s Treasury consultation paper will lead to a very different supervisory approach from the new regulatory bodies.
Allowing early and proactive intervention in product development may, if used sensibly, weed out toxic products or features before consumers suffer heavy losses and the industry has to pay through the Financial Services Compensation Scheme. However, regulators should look to ensure such a move does not reduce consumer choice or lumber uncertain product manufacturers with heavy costs which would be passed on to consumers.
New rules allowing regulators to publish the early stages of enforcement actions could have very damaging consequences for firms which are subsequently exonerated.
The Government wants to give regulators the power to publish the fact that a warning notice, signalling the start of formal enforcement proceedings, has been issued. It believes this would give consumers an early warning sign of potential problems at a firm whereas formal regulatory proceedings could take years to reach an outcome.
Aifa is right to highlight “a worrying shift” to firms being found guilty until proved innocent.
There are significant dangers in this new regulatory approach, with firms effectively being punished before they have a chance to defend themselves or before regulators have a chance to reach their full conclusion on the issue.
It is difficult to see how “a notice of discontinuance”, which would be published if the regulator decides to take no further action, would repair the damage done to a firm’s reputation.