The Financial Conduct Agency will need to have more “teeth” to prevent consumer detriment, the chairman of the Financial Services Authority has revealed.
In his Mansion House City Banquet speech yesterday (20 October) Lord Turner, chairman of the Financial Services Authority (FSA) claimed the agency, which replaces the Consumer Protection and Markets Authority (CPMA), should have the powers that would “provide a real benefit for consumers”.
He told the audience of City workers: “In financial services the potential for the customer to be ripped off is simply far greater than in other sectors of the economy – and the consequences potentially more significant. The challenge for the Financial Conduct Authority will be how to counter that danger. Parliament will need to equip the FCA with new powers that will be needed to give the new approach effective teeth. For example the powers if necessary to demand changes in product terms or even, in extremis, to ban a product in addition to strengthened powers to tackle misleading financial adverts and requiring their withdrawal if necessary. This new approach, underpinned by some new powers can, I am confident, make a difference.”
But Lord Turner noted there also needs to be a realistic understanding that no system of regulation “can, or should, try to create a nil risk market environment. So even in the best designed system problems will still emerge.”
The regulator’s chairman cited the Financial Policy Committee (FPC) as the most important element to address the failures that led to the financial crisis – adding that forthcoming European regulation, particularly around maximum capital levels, had the potential to reduce the flexibility of the FPC to act according to the needs of the UK.
He said: “One thing which is crystal clear, but an area of significant concern, is that forthcoming European legislation must allow adequate flexibility for the national variation of macro-prudential tools. European capital adequacy regulation should enforce minimum standards across the European Union, but it should leave national authorities free to exceed and vary them above the minimum. The idea that securing the single market requires the harmonisation of maximum as well as minimum standards is simply wrong and potentially harmful.”
Lord Turner claimed the issue which has faced the shadow FPC up to now is whether macro-prudential policy has any role to play in helping stimulate credit supply and activity in the downswing.
“If credit supply is the focus, it will be difficult for the Committee to avoid making judgements about the relative importance of different uses of bank balance sheets,” he continued. “And if that is the focus, we may need to consider prudential tools which lean far more aggressively than in the past against the proliferation of intra-financial system complexity, the use of balance sheets to support inter-bank position-taking which has been such a striking feature of the last several decades.”
On the Prudential Regulation Authority (PRA) Lord Turner said that the new authority will build on the regulation set by the FSA. He highlighted that there needed to be a clear understanding in society that the PRA’s approach would not be a zero failure approach and argued that there was a real commitment to end the ‘too big to fail’ issue.