Hector Sants, chief executive officer of the Financial Services Authority, says it is vital the regulator wins the battle with European regulators over being able to apply localised regulations.
Speaking at the British Bankers’ Association conference today, Hants says: “Effective engagement with the European process is paramount to success.
“Critically, we need to win the argument in Europe that supervisors need to have firm-specific discretion and that regulations need to be tailored towards local circumstance. If this does not happen, the European framework will become discredited.”
He also reiterated what some of the powers of the new Financial Conduct Authority will be and says there will need to be a trade off between responsibility and suitability.
He says: “The key question here that society must answer is: to what degree should individual consumers be held responsible for, and given the freedom to, make their own decisions?
“Given the known asymmetry of information between the consumer and the manufacturer, it has been generally accepted that a degree of judgement on suitability should be made by the regulator.
“While the FSA’s approach in the past has been to ensure disclosure of risks and information to consumers, experience has shown that in practice consumers pay scant attention to the material provided to them at the point of sale and in many cases lack the technical skills to evaluate the information.”
He says the FCA is likely to make more suitability judgements and thus run the risk of being accused of reducing personal freedom.
Sants says the FCA will also have the power to ban individual products if they are deemed too risky and it will have the power to ban firms from selling good products if they do not have the correct systems in place.