Amendments to further protect consumers in the Financial Services and Markets Bill, due to be passed into law next year, have been proposed by a task force that wants to see regulators held more accountable.
The independent Transparency Task Force met last week to talk through the Financial Services and Markets Bill, where it needs strengthening, and any changes that would help consumers.
That task force believed regulators, such as the Financial Conduct Authority, are immune from civil liabilities and have been given almost free reign in their operations to pick and choose when they enforce the rules and regulations set out. This has led to consumers feeling that the FCA is untrustworthy to protect their priorities.
Mark Bishop, advisor to the task force and former insurance press officer, said: “There’s a new Prime Minister, of course, and it’s been widely reported that she is aware of that the FCA is a problem child. And she is generally concerned about the issue of regulators in the UK, regulatory capsular and complacency. So we’re working in an environment in which there is a recognition that there are problems that need to be addressed.”
Jennifer Nadel, director of Compassion for Politics, labelled the current political environment as “too partisan” and said it has failed people who should have been protected. She then urged parliament to “act on it now to make sure it doesn’t happen again”.
Jasthi Alom, a former FCA supervisor, was sat in on the meeting and commented: “The actions and inactions of the FCA itself need to be supervised. The FCA demands transparency from the industry, however [it is] incredibly opaque.”
He continued, stating the FCA has a history of appointing its own people into the heads of other regulatory organisations, such as the Financial Services Compensation Scheme and the Financial Ombudsman Scheme.
Finally, he labelled the FCA as “a failed and toxic organisation” that is “the shame of UK financial regulation”.
The Financial Services and Markets Bill is currently at the committee stage in the House of Commons and is expected to be passed into law early next year. The task force felt amendments are needed which Bishop explained are based on three fundamental truths: “If you screw up, you should pay up, what sauce for the goose is sauce for the gander and sunlight is the best disinfectant.”
Bishop continued: “We are not proposing to try and reinvent the structures of UK financial regulation. We are also not challenging the competitive toughness and deregulation agendas. We think it’s far more important to make the case for including new rights and protections, things that aren’t currently drafted or foreseen by the bill.”
The task force stated that the FCA currently has free reign over the financial services, and its operations are very rarely called into question.
Bishop said: “The FCA has enjoyed immunity from civil liability, bar a couple of carve outs that have never been used, since the financial services and markets act 2000 came into effect.”
He explained how the FCA is essentially in charge of regulating itself, and how it has led to complainants missing out on their deserved justice: “The regulator appoints the complaints commissioner, sets their budget, and can choose to ignore their findings as they are only advisory.”
He continued: “The current complaints commissioner was giving evidence to the Treasury committee and she said ‘compensation payments due to regulatory failures on the part of the FCA will, in practice, never be available to complainants’.”
Therefore, the task force proposed that complaints commission findings are binding on regulators. And as a backstop, to allow people with legacy complaints come forward to find their justice.
Bishop explained that this would force the FCA to be more assertive with its regulation: “There should be an end to the civil immunity of the FCA. It [FCA] will become much more assertive in its relationship with firms if it knows that it’s on the hook for the losses it’s unable to secure by means of enforcement.”
The task force then recognised that the industry itself should be more culpable.
“If we’re making the FCA liable when it’s got things wrong, perhaps we should also do so to the industry”, Bishop explained.
Bishop slated the latest FCA regulation Consumer Duty, calling it “materially inferior to a duty of care” and stating that “it is of no value at all”.
Bishop said: “Consumer Duty is not in any legal sense a duty of care; it is materially inferior to a duty of care. Perhaps the most important flaw of the consumer duty is that it is of no value at all, unless the FCA chooses to enforce against it. The FCA is record on enforcement is appalling.”
“If consumers had applied right of action, which by definition, they would in a duty of care, they would have the right to litigate to recover their losses. A duty of care would give them that by definition. Consumer Duty could have been written to include this, the FCA chose not to do this, so consumers are wholly disempowered. So, our proposed amendment to the bill is a statutory duty of care to be owed by authorised persons to consumers.”
Ultimately, Bishop explained that if regulators are bound by complaints commission findings, regulated firms should be bound by a duty of care to provide justice and compensation.
Sunlight is the best disinfectant
The final proposal included in the task force’s amendments was to introduce a new consumer orientated panel, in which the FCA will have to answer to.
Bishop said: “The FCA is currently answerable to three industry panels one consumer one, these are statutory panels. The consumer panel, appointed by the FCA, is not allowed to criticise a regulator without giving forewarning. It is a long time since it has criticised the regulator.
“What we need is a consumer led oversight body, which would keep an eye on the regulator and make public statements if it believed there was a problem.
“Our proposed amendment is to introduce a statutory Financial Regulator Supervision Council, which we’re calling the FRSC.”
Financial Regulator Supervision Council
The task force then outlined its proposed duties which included hiring and firing of the FCA chair, appointing NEDs to the FCA board and the complaints commissioner.
Bishop said: “A little bit more consumer representation and a bit more transparency, would it be beneficial in this area”.
The task force added the FRSC would be responsible for publishing an annual report into the FCA and regulatory regime, and a periodical review of how the FCA treats whistleblowers and their evidence, both of which are not currently done.
It would commission independent reviews of regulatory failures, something currently the FCA does. Bishop explained: “At the moment, the FCA commissions these, which obviously leads to some concerns about how independent they really are.”
Finally, the task force believed the FRSC should oversee the complaints scheme rules, budgets and payments.
The Transparency Task Force said it will submit these amendments, which it described as “offensively reasonable” to parliament in the coming days.