As trailed in Enforcement Watch 9"The FCA's proposed use of temporary product intervention rules", in March this year the then FSA published a Policy Statement regarding the use of the FCA's new and approach-defining power to bring into force short term rules (temporary product intervention rules (TPIR's)) without any consultation (limited to a maximum period of 12 months).
One of the main criticisms made by respondents to the consultation was the continuing lack of clarity as to when and how the power will be used. Set out in its broadest terms, the power can be used where the FCA identifies a threat to its statutory objectives and where prompt action is required. However, respondents noted the lack of clarity on the key tests that would be applied by the FCA in deciding whether and when to exercise that power. In response, the FSA noted that the statutory threshold for the power was deliberately low to give flexibility to the FCA and that it was not helpful in the policy statement to speculate on what the circumstances of their use may be. The FSA also noted that TPIR's are just one of the full range of regulatory tools available to it, including resolution through supervisory action. Whilst this gives an indication that TPIRs will not ordinarily be the FCA’s first point of call, it is not at all clear that they will be a measure of last resort either.
In the circumstances, it is not difficult to see how firms might have concerns about the cost of product development, or the risks of being first to market, without clarity on whether there may be an intervention. Whilst most respondents to the consultation endorsed the need for the new power in order to prevent consumer detriment, there was unsurprisingly also a strong sentiment communicated to the FSA that the impact of the power would inevitably be to supress innovation by Firms. One issue arising out of this for the FCA is how consistent its approach is with its "competition objective". The suggestion is that the FCA is fairly sensitive to this issue.
The FSA also reported that some respondents were concerned that the proposed communication of TPIR's to both the industry and consumers would not be sufficient, both in terms of the lead-up to a TPIR and its promulgation. In response, the FSA stated that it envisaged engaging with firms through the usual supervision process prior to issuing a TPIR – but clearly that will not always be appropriate or possible. In terms of publication, the FSA clarified that website publication would be the minimum level of communication. It reminded firms that it was their responsibility to keep up to speed with the latest regulatory changes. Some respondents sought imposition of a minimum lead time to the introduction of a TPIR, giving the industry an opportunity to take action before a TPIR comes into force. Given the purpose of the new power, this was (perhaps unsurprisingly) not accepted.
Whilst the new statement of policy is clearly useful, the FCA has given itself considerable flexibility to use its new power when it sees fit. As a practical first step, firms will need to take care to monitor this area and put in place mechanisms to catch, interpret and react to TPIR's as and when they are issued. As we have previously commented, depending on how TPIRs are used in practice, TPIRs are open to the challenge of judicial review by those bold enough to take such a step. That said, there is clearly a risk that any judicial review, even if successful, will come too late to reverse the harm done by the TPIR.