Ahead of the second reading of the Financial Services Bill in the House of Lords, Otto Thoresen, director general of the Association of British Insurers says there are still some 'significant changes' that need to be made.
The UK needs a regulatory framework that commands consumer and industry confidence, supports economic growth, and allows a competitive market to deliver positive outcomes for consumers. There is now a broad consensus on the outline of the new framework. But, as the Financial Services Bill moves through the House of Lords, there are still some significant changes that need to be made.
Close co-ordination, both between and within the different regulatory bodies will be necessary to ensure that the new regulatory structure operates in an efficient and effective manner. It is vital that there is no duplication of activities and we would welcome further scrutiny of how this will be achieved.
We welcome the new emphasis in the Financial Conduct Authority's (FCA) objectives of making competitive markets work well for consumers. However, there is now a danger of overlap with the role of the Office of Fair Trading (OFT); the FCA should have the lead responsibility for promoting competition in financial services, undertaking high quality economic analysis before making interventions in markets in pursuit of this objective.
The FCA should not be restricted to avoiding negative outcomes (e.g. mass mis-selling problems) it should also put value on, and strive for, positive outcomes such as well-functioning markets delivering products to consumers that meet their basic financial needs. The FCA's objectives should therefore require it to work with the industry to enhance consumer access to financial services.
Wholesale markets must not be the 'poor relation' in the FCA. The insurance and investment industry does not just operate in the retail market (i.e. where products are sold to customers) it also operates in wholesale markets, allowing the financial markets to channel resources towards tomorrow's growth companies. Financial services markets are diverse and wide-ranging, and the potential for market failure and/or consumer detriment will differ substantially between them. Participants in wholesale markets are generally more confident, have different needs and levels of experience than retail consumers. The Bill should ensure FCA adopts a differential approach to protecting different categories of consumer.
In a more interventionist and judgement-based regulatory environment, regulators must have effective mechanisms in place to make decisions, taking into account the impact on, and views of stakeholders. The ability to challenge the regulator's decisions should be strengthened not weakened. The Bill includes significant new powers for the FCA to ban products and to make public enforcement actions against firms at an early stage. We would like to see proper safeguards around the use of such powers.
Finally, the arrangements appear to have been devised on the assumption that the UK is a stand-alone jurisdiction. However, the European Supervisory Authorities (ESAs) are becoming the main source of detailed regulatory requirements for UK financial services firms. British industry would be better served by a more constructive and strategic dialogue with the EU authorities. It is vital that the government and the new UK regulators involve the industry as early as possible in EU discussions in respect of new requirements that will impact directly on them.