FSA has published the third of its “approach” documents to explain how it plans to regulate under the new regulatory structure. The FCA will be responsible for the prudential and conduct supervision of nearly 25,000 firms (as opposed to the 2,000 which will be prudentially supervised by the PRA and will fall within FCA’s conduct remit only). FCA will apply the approach the Government has required of being:
- outward looking;
- more interventionist at earlier stages to prevent consumer harm; and
- tougher and bolder in intervention and enforcement action.
FSA says one consequence will be that FCA will make judgemental trade-offs between different objectives, which may lead, for example, to its acting to protect some consumers from detriment even where this restricts choice for others. For these purposes, the definition of “consumer” is likely to be wide, including many market users who would fall outside any existing definition of the term. The paper also sets out FCA’s regulatory scope (including the possibility it may take over consumer credit regulation), objectives and powers. It notes that although FCA will not have explicit responsibility for financial stability, its activities will nonetheless be important in preserving stability. The paper gives considerable detail on when FCA may take preventative action in relation to products and markets, and whether at the start of a life cycle or during the distribution phase. It will build on FSA’s theme of credible deterrence. It is still developing its supervisory framework, which is likely to:
- be forward looking and preventative;
- be strong on direct regulatory contact with firms;
- include a minimum standard of baseline supervision for all regulated firms, mainly on a “gone concern” basis. But for some firms, whose failure could threaten the integrity of a particular market even if handled in an orderly fashion, supervision will take place on a “going concern” basis;
- for supervision of markets, be similar to FSA’s current approach, which its says works well; and
- place greater emphasis on wholesale conduct and risks in wholesale markets.
Speaking at FSA's FCA conference, Hector Sants and Margaret Cole spoke on the need for change and for society to take the opportunity to shape FCA's mandate. Hector Sants focused on the necessary "trade-offs" which he said would be between:
- responsibility and suitability;
- intervention and innovation;
- transparency and efficiency;
- cost and effectiveness; and
- accountability and judgement.