Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), launched a consultation on the FCA's guiding set of principles towards the end of 2016.
Key themes that the FCA is consulting on include:
- Protecting consumers – In an environment where consumers are increasingly expected to take responsibility for their own financial decisions, what is the right level of consumer protection; and how does the FCA balance the responsibilities of firms and consumers?
- Vulnerable consumers – Should the FCA prioritise the protection of vulnerable consumers and if so how?
- Delivering consumer redress – What should the role of the FCA be in redress schemes, for example in dealing with activity outside the FCA’s remit?
- When the FCA intervenes – How the FCA identifies harm and how it decides which approach to take to address it; and how can the FCA be clearer for firms, consumers and stakeholders on what it is doing and why?
- The scope of regulation – Explaining the remit the FCA has for taking action and the circumstances in which the FCA may intervene with regard to unregulated activities.
- The interaction between regulation and public policy – Explaining this interaction using examples including access to financial services and price discrimination.
- Competition, supervision and enforcement – Providing clarity and seeking feedback on the FCA’s current approach to using its different regulatory powers and tools.
- FCA Handbook – Seeking suggestions on a proposed review of the FCA Handbook which sets out the rules for firms.
The consultation period ended on 26 January 2017.
In response to the consultation, Rt Hon. Andrew Tyrie MP, Chairman of the Treasury Committee, said:
“At a quick read it looks like a robust attempt to give the FCA a much clearer sense of direction. It also attempts to identify what the FCA cannot reasonably be expected to do. Both are certainly needed. So is the greater transparency about its decisions and choice of priorities, promised in the FCA's consultation document.
“The FCA now has a responsibility to do much better than their predecessor regulator, the FSA. And Parliament has a responsibility not to make the regulator's job impossible by imposing unreasonably heavy demands on it.
“Andrew Bailey has many challenges ahead of him, including the publication of the FCA's report on its review of RBS' treatment of small businesses, the need to strengthen the resilience of IT systems in banks, and reforming the FSCS levy."
The financial services sector had told the FCA that it needed clarity and a sense of direction from the regulator. The FCA has published a number of themes which are "beginning to emerge" from the consultation process into its proposed mission statement.
In its update, the FCA has said: "Respondents largely agree with affording more protection to vulnerable consumers but have different views on who a vulnerable consumer is and emphasizes the need for clear definitions.
"Respondents think we should adopt a more active role in sharing lessons learned and good practice. Respondents would like more tailored communications that illustrate risks for their particular market."
A particular area for discussion is on the use of rules or principles. Some respondents wanted "clear sets of principles for business" rather than prescriptive rules but others preferred more clarity on existing rules, which they felt were too vague.
The FCA has issued a set of questions to clarify what the industry thinks its position should be on various themes. For example, it has asked how the industry thinks it can better communicate the choices it makes, who should be included in the definition of a vulnerable consumer and what the extra protection they get should look like. It has also asked for clarity on the circumstances in which prescriptive rules or higher level principles are more appropriate.
The mission document aims to set out when the FCA would intervene, saying it intends to be more transparent about the things it chooses to do and the things it decides not to do.
It also pledged to be clearer in communicating its assessment of the underlying cause of harm or risk it is seeking to address.
The FCA is also asking whether its approach to long-term products is working. It said they are affected by uncertainty and "present bias", making the regulation of these products "inevitably challenging".
The paper states that the regulator will be issuing a call for evidence, seeking views on the FCA’s Handbook and particularly where clarification would be useful.
OAC considers that this is an excellent opportunity for practitioners to express their views to the regulator.
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Senior Regulatory Compliance Consultant
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