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MM leader: Problems with new powers for regulators

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.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. If correct then I still have no faith in the new regulatory process as for me it seems to be going further in the wrong direction and does seem to be a continuation of the current system but with bigger things to clobber you with which probably means many innocent victims will suffer as well.

    Not convinced this is what we need to protect consumers and make it easier and less painful for them to obtain good advice and have confidence in the products they use or buy.

    May I be proven wrong.

  2. How can partitioning the FSA into the FCA and PRA possibly cost £240m? We know the FCA is going to operate from the same building as the FSA and with almost entirely the same staff, so how is morphing the FSA into the FCA going to cost the £50m so far estimated and announced by Hector Sants? A figure of £5,000,000 would be cause for concern and challenge but £50,000,000! It beggars belief. And how is £190,000,000 going to be spent setting up the PRA? Does this figure include the cost of building a brand new office block from scratch?

    It’s just a crazy waste of other people’s money. Always other peoples’ money. And with no accountability. The FSA basically has unbridled power to do whatever it wants and, as its failures continue to rack up, all Adair Turner does is call for more power, more resources and more money, just more, more, more. It’s a nightmare.

  3. Julian
    They have probably called in “the big 4” to sort it all out for them. That is where all the money will be going.

  4. Anonymous

    Spot on. Remember his Lordship is from a consultancy background so is an acolyte. It never occurs to them that in general terms if a company or firm needs management consultants one wonders what they pay their in house managers for?

    So it is with the FSA or the FCA ort whatever they want top be called. Just watch what they will be spending on rebranding and logos. I wonder if they will be getting a design consultancy to produce a new pretty picture? Not to mention the meetings they will have to discuss it all. What it will cost us in new stationery and web changes will of course be money well spent.

    His Lordship and many of those under him are doubtless extremely bright people, but one thing is always sadly lacking from their CV. They have never created or run their own business nor been responsible – top to bottom – for ensuring that the business is profitable and solvent. If they had then just maybe they would take a somewhat different view of costs, expenses and money.

  5. I long for the day when the FSA and probably the new FCA get their own “notice of discontinuance”.

    New thinking, vision and good listeners please.

  6. Julian Stevens 1st March 2011 at 7:21 pm

    “The Government wants to give regulators the power to………..”

    The government, it seems, is still very much the driving force behind regulatory policy, regardless of Hoban’s oft-repeated claims that the regulator is independent of government. It’s just a lie, pure and simple. A LIE.

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