The current Financial Services Bill offers policymakers a rare chance to radically reshape financial services regulation for the better. It would be a tragic shame if, in the desire to rush through the legislation, the Government fails to make the most of this opportunity.
Following publication of the bill last week, Treasury select committee chairman Andrew Tyrie warned of the dangers of rushing through the new regulations. The TSC’s current inquiry into the accountability of the new Financial Conduct Authority was supposed to inform Treasury policy, yet the bill was published before the TSC’s report has seen the light of day.
The Government wants the bill to have passed through Parliament by the end of the year in time for the new regulators to begin operating in early 2013. But ensuring the new complex rules are properly scrutinised by Parliament is more important than hitting such deadlines.
You only have to look at the Financial Services and Markets Act, which created the FSA and was rushed through Parliament by Labour with minimal scrutiny, to see the dangers of such haste.
New powers to allow the FCA to limit or ban products are understandable given recent misselling scandals and may well protect both vulnerable consumers and advisers who are normally left to clean up such messes. But they will require a careful touch from a regulator who will have to weigh up the possible consumer detriment that could be caused to investors in specific products, or more generally through blunting innovation. The fallout from the FSA’s recent guidance on “death bonds” shows the dangers of such an approach.
Another worrying aspect of the new regulations will be the power for the FCA to publish details of ongoing enforcement cases. Over 10 per cent of enforcement cases in 2010/11 did not result in disciplinary action and such powers could result in firms being found guilty in the press before cases are dropped by the regulator. Again, the FCA will have to tread carefully.
Speaking at a conference last week, new FCA chief Martin Wheatley said his new interventionist approach should not see him cast as a “nanny state” regulator. He was right to suggest consumers must still take responsibility for their actions.
But these reforms will place significant new responsibilities on his staff and their success or failure will depend on the right judgements being reached.