The FCA says a call for evidence on retrospective regulation has produced no genuine examples of where it has applied its rules retrospectively.
In August the regulator asked firms to send it examples of retrospective regulation. It defines this as the application of “a more demanding standard or interpretation of the rules after the event, with the benefit of hindsight”.
Lenders have cited fears of retrospective regulation as the reason they are not applying the transitional arrangements, which were written into the MMR to ensure borrowers were not trapped on their mortgage deals.
In a response published last week, the FCA says it received 36 responses, none of which reflected retrospection under its definition.
However, it adds that many of the responses “raised wider questions about regulatory behaviour” and most examples referred to issues that had persisted in the market for some time before it took action.
The FCA says: “The concern raised was that previous inaction suggested either approval or regulatory indifference, and firms had taken this as a sign that they could continue, for example, selling certain products.
“Some respondents therefore felt that when the regulator had turned its attention to a particular situation it was, in effect, changing its mind.”
Examples included pensions misselling, payment protection insurance misselling and Arch cru.
The regulator says: “This criticism presents a challenge for the FCA. The regulator’s aim is to be forward-looking. Sometimes, the fact that there has been a problem with advice or selling practices may not become clear until some time after the event and it is only at that point that action can be taken. That may require a review of past business.
“While we do not believe that this is an example of retrospection, as we have defined it, we do appreciate the concerns of industry and the challenge that past business reviews pose for them.”
The FCA adds that the number of responses it received suggests the issue “is one of perception” and it expects this perception to change over time, given its aim to be more forward-looking than its predecessor, the FSA.