Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

FSA spin-off to protect consumers could be a ‘poor relation’, warn MPs

Treasury select committee questions powers of new Financial Conduct Authority

The regulator being set up to protect consumers risks being the “poor relation” of the bodies being spun out of the Financial Services Authority, the Treasury select committee warns today.

Calling for the government to legislate to give the Financial Conduct Authority a primary objective to “promote competition to the benefit of consumers”, the MPs also call for the body to set out a “coherent and sustainable plan” for attracting the best staff.

They also think the FCA should conduct a review into merits and costs associated with pre-approving financial products, in contrast to the current system, which has more focus on how products are sold.

The FCA will have responsibility for consumer regulation and financial products, while the Prudential Regulation Authority will be set up inside the Bank of England to regulate major banks. The committee argues that to avoid “institutional bickering” the relationship between the new regulators should be set out in secondary legislation, rather than through a memorandum of understanding.

Andrew Tyrie, chairman of the select committee, argued that the creation of the FCA was an opportunity to improve on the FSA’s approach to regulating consumers following the debacles surrounding mis-selling of payment protection insurance and endowment policies. But, he warned: “If we are not careful, the FCA will become the poor relation among the new institutions. But it is the one that will matter most to millions of consumers.”

The draft bill that has been drafted to facilitate the break-up of the FSA does not go as far as the committee would like as it has a requirement for the FCA to “discharge its general functions in a way which prompted competition”. The committee argues that ranks below a primary objective.

It urges the FCA to communicate with the industry it regulates to counter the criticism levelled at the FSA that it is “aloof and unapproachable”. “We have received a weight of evidence, often anonymous, criticising the FSA for its approach to regulation. We are told that the FSA was overly bureaucratic and that the culture within the regulator is overly legislative and self protecting through ‘box-ticking’,” the committee said.

Tyrie, who is also concerned about the cost of regulation that might fall on consumers, said: “Encouraging a greater level of engagement between firms and the regulator is in the consumer interest.”

The committee does not believe the FCA will be accountable for its actions unless it publishes the minutes of its meetings and the committee be able to subject the chief executive, Martin Wheatley, to pre-appointment scrutiny. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds