Following the June 2011 FSA publication “The Financial Conduct Authority: Approach to Regulation“, which placed the promotion of effective competition at the centre of the new FCA’s remit (discussed here), the FSA has now published ‘Journey to the FCA‘, which provides further detail on what that will mean in practice.

This October 2012 publication sets out how the nascent FCA will approach its regulatory objectives and how the new regulator aims to ensure regulated financial services firms place consumers at the core of their business.

The FCA’s relationship with the OFT

Under the guidance of its new Chairman-Designate, John Griffith-Jones, and its new Chief Executive-Designate, Martin Wheatley, the FCA intends to strengthen the current ways of working with the OFT (and with the Competition and Markets Authority, when the CMA comes into being in 2014).

To this end, the FSA intends to publish early in 2013 a draft MoU detailing how the roles of the FCA and the OFT will develop to ensure consistent and complementary approaches.

Promoting and embedding competition in the FCA’s regulatory approach

Journey to the FCA‘ explains the FCA’s initial thinking on how it intends to fulfil its statutory competition objective and competition duty under the new financial services regulatory structure.

Making clear that competition on quality and price is vital in financial services (above all in markets where the financial crisis has led to a reduction in competition), the FCA recognises the potential of competition to advance all of its operational objectives and explains that its statutory remit requires it to identify and address competition problems and take a more pro-competition approach to regulation.

Where necessary to tackle weak competition in financial services markets, the FCA will take a range of actions under its competition mandate to encourage markets where the successful firms are the ones that respond most effectively to consumers’ genuine needs.

After developing its skills and expertise in competition, the FCA expects to conduct thorough market studies by gathering extensive information from firms. The FCA will consider data on consumers’ and firms’ behaviour, the structure of the market and pricing.

Where possible, the FCA will design a range of pro-competitive remedies to address concerns about a lack of effective competition. These will, for example, seek to reduce undue barriers to entry and expansion, prevent any one firm from dominating the market and empower consumers by improving their knowledge and understanding of the plethora of financial products and services available.

The FCA will make a reference to the OFT where a matter falls outside its remit or where a more radical remedy is required than the FCA is empowered to impose.

Super-complaints

Under general UK competition law, it is possible for certain consumer bodies to make ‘super-complaints’ to the OFT. For example, in March 2011, the consumer body ‘Which?’ complained to the OFT that retailers’ surcharges for credit and debit card payments significantly harmed the interests of consumers.

Similarly, under the proposed FCA regulatory regime, designated consumer bodies will have the right to make a ‘super-complaint’ to the FCA where they consider that there are features of the relevant financial services market (such as the market structure or the conduct of firms operating within it) which cause significant consumer detriment.

These FCA ‘super-complaints’ will be modelled on the OFT process and, like the OFT, the FCA will have 90 days to publish a response setting out how it has dealt with the complaint and whether it has decided to take any action. Draft guidance has already appeared on the FSA website to demonstrate how this process may work and the FCA intends to publish further details in early 2013.

Mass detriment references

While not referred to as ‘super-complaints’, the FCA will also receive referrals from the FOS if it appears that consumers have suffered loss or damage as a result of a regulated person’s ‘regular failure’ to comply with conduct rules, provided that an appropriate legal remedy would be available should consumers decide to initiate legal proceedings. The FSA published draft guidance on this statutory ‘mass detriment reference’ regime in June 2012.

Specific questions for consultation

In an Annex to ‘Journey to the FCA‘, the embryonic FCA seeks comments and views by 14 December 2012 on the content of the document as a whole, as well as specific feedback on two areas:

Competition

The FCA asks for views on its proposed approach to competition and whether a different approach might work better:

In which financial services markets do you think competition is working well in the interests of consumers and in which ones is it working poorly? What do you think the reasons are for this? Are there markets in which you face material barriers to entry or expansion? What are the barriers? Are there any undue regulatory barriers?

Collating information

How can the FCA make it easier for firms, consumers and organisations to provide information on what is going on in financial services firms and markets? What can the FCA do to make you more likely to provide such information to them?

The FCA will summarise and communicate the feedback it receives in early 2013.