The financial services regulator has come under extreme fire as a government committee highlights its “shortcomings” – so what’s next for the regulation of the UK’s highest-earning industry?
A committee of MPs has outlined how the next financial regulation system must avoid becoming “dominated by a box-ticking culture” like the Financial Services Authority (FSA).
The Treasury Committee has highlighted the “shortcomings” of the FSA, which it said had presided over “spectacular” failures, such as the mis-selling of payment protection insurance (PPI) and endowment mortgages. MPs have called for fair competition to be “at the heart of the new regulatory framework” when the Financial Services Bill is drafted later this year.
The committee’s report focused on what the Financial Conduct Authority (FCA), which will replace the FSA, should focus on doing more efficiently to ensure the success of the new system. A key recommendation is that the FCA has more reliable measurements of its own cost-effectiveness and is more accountable to Parliament.
Treasury Committee chairman Andrew Tyrie said: “The FSA is not only expensive, for which the consumer always pays, but many have told us that it has also become bureaucratic and dominated by a box-ticking culture. The creation of the FCA is an opportunity to create something much better.”
He also explained how businesses and consumers found it difficult to communicate with the FSA in the past. Mr Tyrie said: “Too often we’ve heard that the FSA is aloof and unapproachable and that, in any case, firms are nervous about approaching them – we must break with that culture. Encouraging a greater level of engagement between firms and the regulator is in the consumer interest.”
The FSA, which was established in 1997, recently revealed that during the first 10 months of last year more than £1bn had to be paid out to customers over PPI. The Financial Ombudsman has also said that it is expecting to clear a record number of PPI cases during 2012. The watchdog also highlighted how it is “disappointing” that many consumers are still waiting for businesses to do something about their complaints.
The Treasury launched a public consultation on its regulation plans in July 2010, which highlighted the formation of the FCA as one of the key proposals. In September last year it also announced an inquiry into the FCA to make sure that its objectives will “clear and appropriate”.