Financial Service providers in the North East must be prepared for imminent changes to how the sector is regulated.
Since the start of the UK’s financial crisis in 2007 and due to the emergence of issues such as the mis-selling of Payment Protection Insurance (PPI), the Government has been considering changing the way financial services are regulated.
As a result, on April 1 2013, the Financial Services Authority (FSA) will cease to exist and instead three new authorities will oversee the financial sector in a bid to provide better protection for consumers and enhance the integrity of the UK’s financial system, promoting efficiency and market choice.
FSA out – FCA in
The new Financial Conduct Authority (FCA) will replace the FSA in regulating all financial service providers, including banks, insurance companies and anyone offering financial advice and services. It will be responsible for regulating the markets, be the listing authority in the UK, and prosecuting authority.
Banks, insurance companies and systematically important investment firms will also be subject to regulations from the Prudential Regulation Authority (PRA), which will be a subsidiary of the Bank of England, created to promote the safety and soundness of regulated firms, for example by setting institution-specific capital requirements.
A third body, the Financial Policy Committee (FPC) will also be set up to be responsible for macro-economic management, to identify, monitor, remove or reduce risk to the stability of the UK’s financial system.
How does this change affect financial service providers?
Catherine Argent, formerly at Northern Rock and latterly the head of the litigation team at NRAM, leads our new Financial Institution Disputes Team. She explained that of the new regulatory bodies, the FCA is the one of most relevance to financial service providers in the North East and while it will fulfil a similar role to the former FSA, businesses need to be aware of its increased powers and greater consumer focus.
“The FCA will be similar to the FSA – but with more teeth,” she said. “It will have enhanced powers to change misleading financial promotions and require the withdrawal of financial products if necessary. It will look proactively at how the regulated businesses are run, product strategies and business models to enable the FCA to identify problems and intervene earlier.”
“Many of the changes being put in place aim to identify market wide problems,” she explained. “As a result of the PPI mis-selling claims, which are still affecting the banks’ balance sheets, the FCA is likely to have a zero tolerance approach to significant losses being suffered by consumers.”
Identify the issues
One way the regulator can identify emerging issues, is through monitoring complaints. In future, the Financial Ombudsman Service (FOS) will be able to refer issues to the FCA, in a similar way as it did before to the FSA, except that from April new powers mean that, where FOS consider that regular failings are leading to consumers suffering a loss, they can make a mass detriment reference to which the FCA is bound to reply.
In addition, a ‘super complaint’ can be made by an interested group – an informed body representing consumers. This is expected to be used by groups seeking to complain about a service or product, a person or market activity. Once a super complaint or mass detriment reference has been made, the FCA is obliged to respond within 90 days.
Catherine said: “Everyone in the financial sector needs to be more sensitive to any potential or emerging issues that may arise, particularly if there is a risk of consumer detriment. Anyone offering financial advice and services needs to know that the Authorities will be more vigilant and less forgiving.
Minimise risks with advice and training
“We can provide training to help financial service providers identify potential issues and trends in consumer complaints. The key thing is not to ignore any emerging issues. They will need to be proactively managed to protect consumers and businesses.
“Our Financial Institution Disputes Team can help you formulate procedures for minimising the risks of potential issues. We can look at your existing policies, advise on the legal position, and also what the FCA’s position is likely to be, which will be crucial under the new regulation.”