In his recent speech on the new regulatory framework, the FSA’s Chief Executive, Hector Sants, provided a damning critique of the FSA’s past approach to consumer protection, effectively conceding the failure of the FSA’s headline TCF initiative.

In the past, according to Sants, the FSA’s approach and powers have been inadequate, passive and reactive. The FSA has relied too much on ensuring effective disclosure and relying on consumers to make the right judgements. The emphasis had been on making sure firms had the right systems and controls, rather than ensuring the right outcome. Consumers have seen the FSA as remote and out of touch.

The new FCA (which will be led by Martin Wheatley, not Sants), will focus on point of sales practice, product manufacturing frameworks and firms’ governance and culture.

The FCA hopes it will have the power to ban specific products where sound business analysis shows the product is likely to cause more harm than benefit. Whilst Sants says the FCA will not be a ‘no failure’ institution and will not remove individual freedom of choice for consumers, the banning of products could remove a product that would benefit some, if only a minority of consumers.

The powers of the new FCA will no doubt be hotly debated as the new legislation passes through Parliament. Once the FCA does have the power to ban products, we can expect firms to argue that the fact their product was not banned is some form of seal of regulatory approval. We doubt that argument would succeed, and would certainly warn financial advisers against treating the FCA’s non banning of a product as a green light to sell it without adequate investigation or understanding.

What is absolutely clear is that it is intended the FCA will be a more proactive regulator, and will continue the FSA’s recent intrusive approach. Sants made clear that credible deterrence, as well as the RDR and the MMR, are here to stay.