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On 17 July 2014 over 200 attendees, largely made up of industry participants and members of the public, filled the hall at the Queen Elizabeth II Conference Centre in London where the first public annual FCA meeting got under way.
Other than the dissident voice of a solitary protestor, laying the accusation through a megaphone that FCA chief executive, Martin Wheatley, was wasting tax payers money—a protest and sentiment largely ignored by those filing into the conference centre—it was a pragmatic yet positive conference with the acknowledgement that with only one year under its belt, the FCA still had far to go.
Regulation that strikes the right balance
For a first public meeting, you would have expected a modicum of nerves from the panel, made up of eight senior FCA figures (including Chief Executive, Martin Wheatley, Director of Supervision, Clive Adamson and Director of Enforcement, Tracey McDermott), given the scrutiny and criticisms the regulator has suffered from the press and the government, but none of it. FCA Chairman, John Griffith-Jones, opened the meeting and was quick to establish the tone, citing that the FCA has enjoyed “a first year of solid progress”. Regulation has to strike the right balance, moving conduct from the back office to the boardroom. The FCA were “very proud” of their progress and “had made considerable strides” in achieving that goal. John Griffith-Jones was emphatic when he stated “the split had allowed both bodies (the FCA and PRA) to do what they do well”, but admitted “there is still much to do”.
Regulation of the retail sector was reported to be going well but the wholesale market continued to exhibit “nuances”, which would become the focus in the coming year. The FCA is now regulator of some 70,000 firms, a three-fold increase for the organisation and a substantial challenge. 50,000 of these are consumer credit firms seeking interim permission following the demise of the Office of Fair Trading and the FCA’s new responsibility for consumer credit. John Griffith-Jones was quick to point out the FCA were already seeing practices they considered well below those expected and required. However, the FCA’s Radar Unit has provided feedback that the FCA is easier to deal with than its predecessor, the Financial Services Authority (FSA).
In terms of its own performance, retaining staff was a key issue over the last year. The FCA introduced a three year people strategy to train and retain people from within the industry, with a significant uplift in skills within the retail sector.
Taking on additional responsibilities
Martin Wheatley continued the theme of regulatory change by talking about the FCA’s additional responsibilities to those of the FSA. As well as assuming regulatory responsibility for the consumer credit industry, the FCA acquired the new objective of promoting effective competition for consumers. With concurrent competition powers with the Competition Authority coming in 2015, the FCA’s competition objectives will continue to build. The course of 2014 has seen significant challenges with the introduction of a new regulator, the Payment Systems Regulator (PSR). The FCA is currently figuring out exactly how the PSR, which has been incorporated as a subsidiary of the FCA, will work within the regulatory system.
The FCA’s approach to supervision
Martin Wheatley was also at pains to reinforce the fact that the FCA’s approach to supervision was changing. The FCA now looks not just at the rules, but also at consumer behaviors and how they make financial decisions - so called ‘behavioral economics’ - to inform its work.
The FCA is engaging with banks and building societies to tackle such issues as the spectre of interest only mortgages, the lack of credible repayment vehicles, and improvements to bank ‘failed payment’ mechanisms. More recently, the FCA conducted an investigation into low introductory interest rates (teaser rates) which encourage consumers to sign up to products that then unexpectedly or inexplicably rise. The findings of the report suggest short comings in the form of consumer inertia, that is, consumers generally fail to act and stay on the higher rate to their detriment. The FCA is currently considering potential solutions, but noted that it wants to see firms focus on change at a consumer level.
Strong focus on core objectives
Despite the significant challenges facing the FCA, Martin Wheatley was certain that the FCA remained focused on its core objectives of protecting consumers, promoting competition and protecting and enhancing market integrity. As he put it, regulation is not a zero-sum game. If the regulator gets it right the markets work well, and the industry and consumers benefit.
Cheryl Jones, barrister in the Lexis®PSL Financial Services team.
This article was first published on Lexis®PSL. Click here for a free one week trial of Lexis®PSL.
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