Posted: 15th November 2016
On the 26th of October, the FCA launched a consultation on its mission; its purpose is to provide a guiding set of principles around the strategic choices the FCA makes.
The consultation considers a number of topics, from delivering against statutory objectives and how the regulator chooses the most appropriate tools in order to complete its work, to wider questions of consumer protection and responsibility, vulnerability and encouraging change and innovation.
Key Points from the FCA’s Mission Consultation
The FCA will be consulting on a number of different themes:
Consumers are increasingly expected to take more responsibility for their financial decisions, for example, in the case of pension freedoms. What is deemed as the right level of consumer protection and how does the FCA balance the responsibilities of firms and consumers?
The FCA believes that alongside the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS), all financial services regulators have a role in ensuring consumers receive fair outcomes, protection and redress, via cheaper and quicker routes rather than going through the courts. These routes will also play a role in improving market confidence.
The FCA will use the following criteria to assess whether or not to affect redress:
- How quickly and urgently redress is needed
- The number of consumers affected
- Whether the activity that led to harm occurs inside or outside their remit as a regulator
Protecting vulnerable customers
The FCA has a specific role to protect vulnerable customers, and low income exacerbates any individual vulnerability. This could mean that the FCA will provide higher levels of protection for some consumer groups.
Transparency and disclosure
Traditionally, policymakers assume that people generally make the right choice for their needs providing they are given as much information as possible. However, behavioural economics has shown that inherent bias can play a greater role in influencing consumers’ decisions. The FCA will consider being more prescriptive in markets where they feel other methods of presenting information are not working.
When the FCA intervenes
The FCA intervenes to stop potential harm, and will prioritise decisions by assessing various factors. They will always look to investigate the severity of misconduct, regardless of the scale of harm.
The following questions will be asked before the FCA intervenes in firms’ activity:
- Would solving the problem help us meet our objectives?
- Could using our powers address the problem effectively or would intervention by another authority be more effective?
- Does the activity we are intervening in have a broader social benefit and, if so, how might our intervention affect its provision?
- What degree of consumer protection and responsibility might be appropriate in a particular market?
The scope of regulation
The FCA believes that effective regulation can help create a more competitive and innovative market. They have already begun – and propose to continue – to identify specific areas where regulation is inhibiting competition. The FCA will explain the responsibility they have for taking action and the circumstances in which the FCA may intervene with regard to unregulated activities.
Regulation and broader public policy
The FCA wishes to establish where conduct regulation has a role to play in overcoming challenges such as access to financial services and price discrimination, to name two of the specific areas referenced.
The point at which the FCA’s role ends and broader public policymaking takes over needs to be made clearer in order to apportion responsibility for consumer protection correctly.
Competition, supervision and enforcement
The FCA is seeking feedback on its current approach to its variety of regulatory powers and tools. The FCA’s approach is to create a framework of rules to govern the operation of markets and then apply forward-looking judgement in supervision and backword-looking judgement in enforcement actions.
The FCA indicates that in light of its desire to be more transparent, it is reviewing the use of ‘private warnings’.
The FCA Handbook
The regulator is seeking suggestions on a proposed review of the Handbook. The review will look at ways to reduce the restrictions that regulation can cause without compromising on the FCA’s wider objectives. Effective regulation can create a more competitive and innovative financial services market. The FCA has already identified specific areas where regulation is inhibiting competition.
Regulatory next Steps
The FCA requires input into the key questions outlined within the document, as well as any other relevant elements firms feel the Mission should address.
Comments need to be submitted by the 26th January 2016.
Considerations for firms
The regulator is keen to clear the ‘blurred lines’ between regulated and unregulated activities. Although it is focused on regulated firms, it has stated it is prepared to intervene in unregulated activities if they could cause widespread damage.
The Mission document can generally be seen as a catalyst for open and collaborative industry discussion about how it is regulated.. Firms should treat this as an opportunity to engage with, contribute to and influence the work of the regulator like never before as it continues to strive to ensure the financial services industry protects consumers while remaining competitive.