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Financial regulation: The Blueprint for Reform

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    On 28 June the Government published its White Paper and the draft Financial Services Bill setting out more detail and the proposed legislative structure for the financial services market.  The consultation and the text of the draft bill are open for response until 8 September 2011.  The Government is very keen to engage with all the key stakeholders ahead of the closing date given the number of issues that still remain around the detail of its proposed new structure based around the FBC, the PRA and the FCA.

    The contents of the Bill, whilst voluminous as expected, do track the approach that the Government had indicated throughout its consultations into establishing a new regulatory structure.

    The powers and objectives of the FCA merit some concern as this body is the one with which the majority of regulated businesses will have most consistent contact.

    The FCA is directed to have regard to six regulated principles being

    • the use of its resources in the most efficient and economic way
    • consumers should take responsibilities for their decisions
    • that a burden or restriction imposed on an entity or activity should be proportionate to the benefit that it should realise
    • senior management carry responsibilities for compliance with the regulatory framework – the need for far more openness and disclosure particularly relating to market information to enhance market discipline
    • the exercise of the FCA functions as transparently as possible.

    Whilst these constitute a relatively balanced set of requirements there is no doubt that the FCA will take a far more dynamic approach than that has been adopted by the FSA historically and will be far more in line with the current approach of the FSA on Product Intervention.  It is clear that the FCA will take quite an intrusive approach to product development and design but as has become apparent with the approach of the FSA in relation to PPI, the fact that it may not impede or limit the launch of a product does not constitute an indication that it is perceived to be acceptable and will not be the subject of further action.

    The intention is that the FCA will try to establish the underlying cause of problems and will spend far more time understanding what the behavioural drivers are for consumers looking at matters throughout the distribution chain.

    As Hector Sants said at the launch of the Consultation and draft Bill it will mirror the current style of the FSA in making a more judgmental approach on the suitability of products even if this was at the expense of competition.  Margaret Cole also stressed that the FCA would seek to intervene at an earlier stage, undertake more aggressive and open enforcement action and seek a high degree of influence in the market.

    If you require any more information about the details behind the Government’s approach and/or the draft Financial Services bill please do not hesitate to contact us.  We will also be circulating details of a seminar we will be running on 13 October where one of the issues we will cover will be the then status of the new regulatory structure in light of the consequences of ongoing consultation through to 8 September 2011.

    For more information contact

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