UK Financial Regulation To Be ‘Bolder’
Thursday June 30 2011 | 01:45 PM

Financial regulation in the UK will be tougher and bolder under the government's new regulatory structure, according to the current regulator, the Financial Services Authority (FSA).

The FSA has launched an approach document, which sets out how the future Financial Conduct Authority (FCA) will deliver its objectives when it takes over the FSA's responsibilities at the end of next year. The document sets out the approach the FCA plans to take and raises issues that the FSA feels need to be considered by industry and consumer representatives, along with legislators.

Under the government's plans, the FSA will have its existing responsibilities split between two new bodies. One of these, the FCA, will act as regulator in the retail and wholesale markets, and, according to the FSA, operate with the single strategic objective of protecting and enhancing confidence in the UK financial system. It will, the FSA has stressed, be tougher, bolder and more engaged with consumers.

In line with a recent government White Paper, the FSA has argued that the FCA will be better informed on consumer concerns and behaviour, where this is relevant to regulatory action. It will intervene earlier to tackle potential risks to consumer protection and market integrity before they crystallize, and both build on and enhance the FSA's deterrence strategy, using its new powers of intervention and enforcement.

Most importantl, perhaps, is the FSA's insistence that an open debate on the future FCA, in part facilitated by this new document, is needed to find consensus on the type of regulator needed to restore customer trust in a sector which has been hit by mis-selling scandals.

Hector Sants, FSA chief executive, said: “Trust in the financial services sector is at an all time low and the new regulatory arrangements provide the opportunity to restore confidence in an industry which has generated in excess of GBP15bn detriment over the last two decades. 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 includes 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".

“The FCA’s proposed approach moves the calibration of these questions in favour of more intervention but the question which needs to be answered is whether society is happy to accept the resultant costs and potential reduction in individual freedom”, Sants added.

Margaret Cole, interim managing director of the conduct business unit, commented: “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.”