FCA will be tougher and bolder than the FSA

The Financial Conduct Authority will be tougher and bolder than the Financial Services Authority, the regulator has revealed.

The FSA has today outlined how its successor body will deliver its objectives of protecting consumers and regulating markets from the end of 2012.

Hector Sants, chief executive of the FSA, says: “This document sets out the approach the FCA will be taking to improve regulation, a key element in restoring trust in the industry.

“For the FCA to be successful it must have the support of society and parliament, and its objectives and approach must be clearly understood by all.

“The document is designed to stimulate debate on the key questions to be resolved, which include finding the right balance between the benefits of early intervention and the consequent risks of reducing choice and raising costs, and also clarity regarding the balance of responsibilities between consumers and industry.”

He adds that the proposed approach of the FCA is one in favour of more intervention, but says the question remains whether society is happy to accept the resultant costs and potential reduction in individual freedom.

Margaret Cole, interim managing director of the conduct business unit at the FSA, says: “We will now press on with developing our thinking on how to implement the approach set out in this document.

“We are clear that this will require significant investment, building on and improving what the FSA has achieved so far.

“I am confident that, if implemented, this approach will deliver significantly higher levels of protection than consumers have enjoyed over the last 20 years.”

The publication sets out the approach the FCA plans to take and raises issues that need to be considered by industry, legislators and consumer representatives.

The FSA says this open debate seeks to find consensus on the type of regulator needed to restore customer trust in the sector.

The regulator says it would welcome comments on the approach document by September 1 2011.

The government has said that the FCA will not be an economic regulator in the sense of prescribing returns for financial products or services.

The FCA will, however, be interested in prices because prices and margins can be key indicators of whether a market is competitive.

Where its powers allow, the FCA will take into consideration more positively the cost of products or services in making judgements about whether consumers are being
fairly treated.

Where competition is impaired, price intervention by the FCA may be one of a number of tools necessary to protect consumers. This would involve the FCA making
judgements about the value for money of products.

The FCA will thus consider exercising its powers to take action where costs or charges are excessive. There are currently rules on excessive charges for mortgage
arrears; and the FCA could, for example, re-introduce rules on excessive charges for a wider range of investments.

For charges that are unfair or clearly out of line, there is an immediate value to intervention which would not require the FCA to be an economic regulator.

The FCA could also consider requiring product providers to show that charges are not at a level that undermines the possibility of consumers achieving a return.