New FCA's enforcement approach will focus increasingly on senior management says FSA

In a speech at what will likely be the last annual enforcement conference by the soon-to-be-disbanded Financial Services Authority (FSA), acting head of enforcement Tracey McDermott said that the Financial Conduct Authority (FCA) would "intervene earlier to minimise consumer detriment", rather than focusing on individual penalties. It would also be more prepared to intervene against firms that responded by "fixing only the immediate problem but failing to think about ... underlying causes" than its predecessor, she said.

"Effective enforcement is, in my view, clearly part of the answer," she said. "But that enforcement need to get further up the chain of command – to look increasingly at those in senior management who fail to recognise and manage the risks their firm is running, who fail to control the way their products are sold, and who fail to ensure that the interests of consumers are at the forefront of the minds of those designing, and working out profit projections and sales channels for, new products."

The new enforcement body needed to be "quicker to respond to emerging issues", she added, meaning that it needed to "be better at identifying emerging trends of potential drivers of poor behaviour" and "nip problems in the bud" when areas of concern were identified.

It would do this through more efficient "thematic" work with supervisory colleagues and through the use of new powers, including the power to ban products on a temporary basis, she said.

She added that the FCA would likely have "a lower tolerance for repeat offenders" in situations where a firm's culture, training or reward practices caused similar problems across different areas and products.

The draft Financial Services Bill, currently before Parliament, will dismantle the FSA and hand most of its day-to-day regulation and supervisory powers in relation to banks, building societies and insurers to a new Prudential Regulation Authority (PRA) within the Bank of England. A new Financial Policy Committee (FPC), also within the Bank, will address wider 'macro-prudential' issues that may threaten economic and financial stability, while the FCA will handle conduct and compliance issues and ensure that financial markets run well.

The FSA expects the formal legal creation of the FCA and PRA to happen "early next year", McDermott said.

In an earlier speech Martin Wheatley, who is to be the first chief executive of the FCA, said that the FSA would publish a document setting out the FCA's powers in the autumn. The new regulator is expected to have powers relating to product intervention, competition, warning notices, 'supercomplaints' and financial promotions; however, Wheatley said that concerns the FCA may be "heavy handed" with its remit were unfounded.

"The new powers conferred to us via the [Financial Services Bill] will allow the FCA to act faster and take action when we see firms behave in a way that doesn't promote good outcomes for consumers," he said. "But the point I would like to stress is that while we will have these new powers, they won't always be the first thing we reach for. We will continue to work with firms to ensure they are clear about our expectations and how they need to behave. However, we will use these powers when needed - they aren't just window dressing."

Wheatley also confirmed that the FCA would take a "proactive" approach, allowing it to better identify potential risks before they occur.

"The FCA will look at firms individually as well as across sectors to ensure that everything a firm does - from the way it develops products to the way they are sold - is done with good consumer outcomes in mind," he said.