Conservative MP Mark Field says it is of “enormous concern” that the Financial Conduct Authority will carry out prudential regulation of investment firms similar to Arch cru, Keydata and MF Global, warning it will not have the expertise required.
Under the new regulatory structure, the FCA will be responsible for the conduct and prudential regulation of 24, 496 investment firms.
Speaking in a debate on the Financial Services Bill in the House of Commons this week, MP for the Cities of London and Westminster Field said the recent failures of Arch Cru, Keydata and MF Global demonstrates the need for “proper regulation of firms with sizeable assets that are engaged in complex activities”.
He said: “The FCA is set to be a competent financial conduct regulator but it is no secret that it is not an expert prudential regulator. The prudential experts will all be located in the PRA.
“That is fine when the firms that are prudentially regulated by the FCA are small and relatively straightforward with few systemic risks but none of the three firms to which I have referred can be regarded as small or straightforward businesses. This situation is an enormous concern. Firms are facing increased liabilities through the Financial Services Compensation Scheme and the future structure of the supervisory regime does not suggest that prudential regulation of these firms is likely to improve.”
The Treasury has dismissed Field’s concerns, saying measures have been “hardwired” into the bill to ensure effective co-ordination between the two bodies.
A spokesman says: “There is a statutory duty to coordinate, cross-membership of boards and specific requirements to consult in respect of specific regulatory processes.”
Investment intermediaries were hit with a £60m FSCS interim levy last month for 2011/12, which included compensation costs of MF Global, Keydata and CF Arch cru. Keydata and CF Arch cru costs also contributed to the estimated £33m annual levy on investment intermediaries for 2012/13.
Derbyshire Booth Financial Management managing director Greg Heath says: “Poor prudential regulation of these firms will push up FSCS costs even more, which already punches a big hole in firms’ finances.”
Last month, Field tabled an amendment to the Financial Services Bill that would have forced the FSA to pay for section 166 reports and only levy firms if the findings lead to enforcement action. The amendment was not selected to be voted as part of this week’s Parliamentary debate. Earlier this month, Aifa raised concerns the FSA is increasingly forcing IFA firms to undertake the skilled persons reports, with 95 s166 notices issued in 2009/10, costing firms £32.2m.