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New regulator to take "earlier and more decisive action" on financial sector problems


The UK's new financial conduct regulator will take "earlier and more decisive action" on products and promotions that create risks for consumers, its head has said.

Martin Wheatley was speaking as the Financial Services Authority (FSA) published a paper setting out how the new Financial Conduct Authority (FCA) will operate when it starts work next year. The FCA, which will take over the FSA's conduct and compliance functions and will have the power to ban unsuitable products and promotions.

"The FCA offers a huge opportunity for the regulator and firms to start afresh, and work in partnership to reset how we deal with conduct in financial services," Wheatley said in a speech at a business event. "We see it as the role of the regulator to not only make the relevant markets work well but also to help firms get back to putting their customers at the heart of how they do business."

The new conduct regulator is one of three bodies which will be established under the Financial Services Bill, a draft of which is currently before Parliament. The Bill 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.

The objective of the FCA, as set out in the Bill, is to ensure that relevant markets work well. It will be responsible for the conduct supervision of financial services firms, and for the prudential supervision of those firms not supervised by the PRA. The Financial Services Bill also allows the FCA to take on responsibility for consumer credit regulation from the Office of Fair Trading (OFT).

According to the new paper, the FCA will consult on the details of its consumer credit regime in autumn 2013. It expects to introduce a full regime from 2016 to replace an interim regime which will apply if it is to take over this area of regulation.

The FCA will be given a "clear mandate" to make rules to ban products that pose unacceptable risks to consumers, and will be able to do so for up to 12 months without consultation in cases where it needs to intervene quickly. It will also be able to ban misleading advertising. The FSA said that the new body would "aim to learn the lessons of previous issues such as PPI mis-selling" by taking action more quickly, while at the same time devoting more resources to cros-industry projects and analysing emerging risks.

The new regulator will also be responsible for promoting "effective competition" in the interests of consumers. According to the paper, the FCA intends that no single firm will dominate the financial services market. It will address this by empowering consumers, reducing barriers to entry to the marketplace and ensuring that firms focus on meeting consumers' genuine needs.

"In our work here, and in other areas, I am very conscious that we have to work with firms," Wheatley said. "Making regulation work better for us is also about allowing firms room to try new ideas and develop their business. Promoting competition will play an important part in this. We are not here to stand in the way of progress that will be of benefit to consumers."

He added that firms selling "the right products, in the right way, to the right consumers" would have "little to fear" from the regulator's tough new powers and would likely have "little direct contact" with their new supervisors.

The paper also seeks industry views on specific questions relating to the FCA's new competition role and its approach to gathering and receiving information, which should be submitted by 14 December. The FSA intends to publish feedback on this consultation in early 2013. The paper also sets out a number of further consultations and draft proposals due to be published before the legal cutover to the FCA. These include a consultation on the FCA's new business model threshold condition, adaptations to the FSA's current fees methodology, a discussion paper on regulatory transparency and more details of the FCA's approach to fast-tracked 'super-complaints' brought by the regulator on behalf of groups of consumers.

In an earlier speech Financial Secretary to the Treasury Greg Clark said that the FCA was the first UK financial services regulator to be given an "active role" in promoting competition. As part of its remit, the new regulator would be prompted to "first think about whether it can use competition, rather than regulation" when changes were necessary, he said.

"Competition is important because it drives efficiency and innovation," he said. "It can lead to lower prices, better quality products, and more choice for consumers ... The FCA must also be willing to take a critical view of the role that it, as the regulator may play in preventing or distorting competition. It is vital that the FCA is not simply a regulator of incumbents."

The FSA has also confirmed that it has now adopted an internal 'twin peaks' model for authorising those new financial services firms that will be dual regulated by both the FCA and PRA in the future. The change, which will not affect the current applications process, reflects the similar supervisory structure adopted by the FSA in April and will enable it to mirror future authorisation procedures as far as possible. Assessments will now be carried out by both a Prudential Business Unit (PBU) and Conduct Business Unit (CBU), both of which will need to agree on the final approval of a firm. In each case a CBU case officer and PBU supervisor will take a co-ordinated approach to applications in order to minimise duplication and the impact of the new regime on applicant firms and individuals.

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