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MPs warn regulatory change could create ‘defective’ system

The Treasury select committee has attacked the Government’s latest proposals for the Financial Conduct Authority warning they could lead to a defective regulatory system, extra costs on the industry and consumers and ineffective accountability.

In a report published last night, the committee calls on the TSC to have the power to demand retrospective reviews of the incoming market regulator’s activities. It also restates the committee’s desire for the FCA board to be given a duty to publish its minutes, as suggested by FSA chairman Adair Turner in November, and for it to be responsible for responding to requests for information from the TSC.

The report says the FCA should be required to carry out more comprehensive cost benefit analyses with increased consultation with firms, representative bodies and regulatory panels before introducing regulations. It says the regulator’s chief executive should face pre-appointment scrutiny by the TSC, as is the case for members of the monetary and financial policy committees.

TSC chairman Andrew Tyrie (pictured) says benchmarks for cost benefit analyses to meet should be included in the bill because costs imposed on firms through regulatory rules end up being paid by consumers. He also says the cost of regulation has been “neglected” in the past and that cost benefit analyses should be carried out on regulations already in place.

Tyrie warns again that work on the Financial Services Bill is being rushed and that unless sufficient time is given to getting the reforms right, the result could be a “defective” regulatory system.

He says: “The FCA has been given huge powers.  It is not enough, as the Government has proposed, merely to match the weak, pre-existing accountability arrangements of the FSA. They must be substantially strengthened if the FCA is adequately to be accountable to Parliament and, through Parliament, to the public.

“It was only as a result of intensive committee pressure that the FSA published an account of the UK’s biggest ever banking failure, at RBS. It should not be necessary for the committee to engage in such protracted exchanges with the regulator in order to ensure transparency.”

The committee remains concerned about the FCA having a strategic objective of “ensuring financial markets and the market for regulated financial services work well” as well as three operational objectives of “securing an appropriate degree of consumer protection”, “protecting and enhancing the integrity of the UK financial system” and “promoting effective competition in the interests of consumers”. The report says the Government is “confused” over whether operational objectives supplement the strategic objective or act as a check on it.
The Government wants the Prudential Regulation Authority to have a veto over the FCA so it can stop it taking action it feels might interfere with its objective of ensuring the “safety and soundness” of firms. However, Tyrie says responsibility for the stability of the financial system rests with the Financial Policy Committee. “If anyone is to wield a veto over the FCA, it should therefore be the FPC and not the PRA,” he says.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Am I the only one who feels that we were much better 30 years ago and that all that has happened over the intervening period is that a completely new industry has been built peopled by individuals who produce nothing at all that is beneficial to our country? Regulatory heaven!

  2. You’re not entirely right Hugh. Having worked at a ‘broker’ in the eighties, things really did need sorting out. By the end of the nineties the balance between regulation, cost and protection seemed about right. If only the FSA had allowed those rules to settle down and work rather than making constant change for the past 12 years we would be in a better place.

    BTW Andrew Tyrie is rapidly becoming my favourite MP. He appears to have a good understanding of the problems that exist and that look like they will be repeated with the FCA.

  3. @hugh jeego
    No you are not alone.

  4. I agree with Hugh Jeego’s comments.
    Where is this all taking us and at what cost.
    The wee man suffers once again.

  5. Whilst mr Tyrie is, I am sure avery pleasant chap, after all he calls sants, ‘My Dear Hector’, and I he seems to be able to talk sense, his prioirty should have been to make the FSA/FCA accountable to Parliament. In that vital task he has singularly failed. That failure condemns us to years of lamentable regulation.

  6. Sorry Hugh and Hugh , ive been in this industry since 1984 and the things i saw going on under no regulation made my stomach turn. I do agree with Soren though, its now regulaton gone crazy, and thats because in effect the regulator is a business, and they constantly have to justify their existance by creating more and more work that really isnt needed. RDR is a clasic example, hundreds of millions spent, 6 years work, benefit to the public-nil. Actually next year we will really see how RDR will affect the public when virtually all financial products purchased through an IFA will cost more than they do today!!!

  7. Incompetent Regulators Award Team 28th February 2012 at 10:12 am

    Hugh has my vote too.

    All that mis-regulation has done is created thousands of non jobs for pen pushers and alienated the consumer.

    Crooks would get done by the courts as the FSA is ineffective in bad practice cases.

    ‘World Class Regulator’ remember?

  8. All previous comments have a valid point, however one thing is that if the regulation was about right in the 90’s, then the government would have saved millions in changing regulation to the crazy level it is today…how much do you think these reports in to this, a white paper in to that cost…. complete waste of time. Sandlers was a joke,,, everyone knows that, bring on stakeholder!!! was the cry, every IFA in the country worth his or her salt knew it would fail, the mechanics of it might make sense, but the distribution of it was never going to work, so they have come out with a new system which will be on us soon. might work – might not, the people getting paid for changing all this, need to be brought to account….regulation is good, dictation isnt, and thats what happened. I would love to see a situation where we had a voice and that voice counted, and made those in the ivory towers which we pay for listen….

  9. I am of the firm belief that Mr Tyrie is the only one with a brain.

    The cost of the RDR and moving forward is huge, couple that with the lost revenue (tax payable) of job losses across the industry compounded by the increase in benefits that would be payable (not everyone will swap into full time employment) this will run into millions. We are even seeing some huge companies moving abroad (PRU) Aisa must be thinking “Great if the UK dont want the revenue we will”

    Its a wonder Mr Cameron has’nt walked into the FSA and grabed Sants by the throat and said “your stupid @~@~ed up RDR has cost the country millions YOUR FIRED”

    Someone somewhere must be doing the maths, arn’t they ?

  10. Andrew Tyrie seems to be asking the right questions but what is amazing is that David Cameron & co have not seen the writing on the wall. He seems to be content to let financial regulation ‘look after itself ‘. Does he and the senior civil servants not realise tha financial weelbeing

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