In July 2013, the FCA published a paper entitled “The FCA’s approach to advancing its objectives“. The paper gives some further indication of how the FCA proposes to meet its 3 main operational objectives: (a) protecting consumers, (b) enhancing the integrity of the UK financial system, and (c) promoting competition in the markets.
The FCA’s approach to protecting consumers will be informed by the six retail outcomes set out in the FSA’s Treating Customers Fairly (TCF) initiative. The FCA said:
“We expect firms to base their business models, their culture and how they run their businesses on the principle of treating customers fairly and to demonstrate good conduct through their dealings with consumers, each other and the market”.
The FCA emphasised that it has a low tolerance for poor conduct towards consumers and will engage in credible deterrence, including “taking tough and meaningful action against firms and individuals who break our rules as well as those who carry out illegal unauthorised business”.
Integrity of the UK financial system
In setting out the approach to its market integrity objective, the FCA explains its approach to prudential policy, to ensuring the quality of those (firms and individuals) who enter the industry, and to regulating markets, and stresses that it will adopt an interventionist policy for supervising existing wholesale conduct issues.
The FCA confirms that it will use its civil and criminal enforcement powers on a proportionate basis, but emphasised that such powers would be used “robustly” where appropriate. For example, the FCA would use its civil powers to impose tough penalties or bans for instances of market abuse committed by firms or individuals, as well as to secure High Court injunctions.
The FCA also highlights the various powers available to support its promotion of the competition objective. In particular, its own initiative powers permit it to change the permissions/operation requirements applicable to a business. The FCA said its policy is to “normally choose the most pro-competitive measure” in a range of options provided it is compatible with its duties as a whole.
In assessing whether intervention is needed, the FCA will use market studies as its main tool for examining competition issues. It will look to:
- the market power held by suppliers
- problems in the flow of information between market participants
- low supplier switching rates
- costs or benefits to third parties,
- problems in the way that consumers or firms make decisions,
- too little consumption for certain financial products, and
- existing regulation.
Actions that the FCA may take following market studies range from policy or regulatory changes to behavioural measures, intervention to affect prices, or structural measures such as the divestment of assets or businesses. In exceptional circumstances, it may use temporary product intervention powers to intervene early and prevent harm.