As the FCA explained, the Financial Services Act 2012 introduced into FSMA two new mechanisms to allow certain persons to bring information to its attention. Section 234C enables designated consumer bodies to make a super complaint to the FCA. Similarly,
s. 234D enables regulated persons and the FOS to make references to the FCA. Further, FSMA also requires the FCA to publish guidance on the presentation of a reasoned case for such a complaint or reference. The Guidance sets out in some detail what should be referred and how.
Section 234E requires the FCA, in respect of a qualifying reference, to publish a response within 90 days, including a copy of the reference and the action the FCA plans to take. The FCA says it will at least consult with a firm before publishing its plan to take regulatory action against it.
As far as firms are concerned, the option to make such a reference – the Act only provides that a firm or FOS "may" make a reference – is unlikely to alter the regulatory burdens significantly. I have written before about the root cause analysis rules and TCF obligation to consider the position of customers in the same position, even if they have not complained. Whilst firms are unlikely to volunteer a s.234D reference about themselves, the Guidance makes clear that their obligations under Prin 11 and DISP 1.3.6 are "much wider". The relevant part warrants quoting in full:
"A reference to us by a regulated person regarding its own failings does not fulfil the regulated person's obligations to ensure that it identifies any recurring or systemic problems. If firms identify such problems they should (in line with Principle 6) consider whether they ought to act with regard to the position of customers who may have suffered harm from, or been potentially disadvantaged by, such problems but who have not complained. If so, they must take appropriate and proportionate measures to ensure that those customers are given appropriate redress or a proper opportunity to obtain it. This may include a review of files and other measures (see ... DISP 1.3.6G). Principle 11 is also relevant; it requires a firm to deal with its regulators in an open and cooperative way, and to disclose to us appropriately anything relating to the firm of which we
would reasonably expect notice. While it may be appropriate in certain circumstances for firms to bring issues to our attention by way of a s.234D reference, the scope of their duty of openness and cooperation under Principle 11 is much wider."
What makes this new option for firms even more curious is that it is not being suggested that a firm referring itself under s.234D would earn immunity or even 'regulatory credits'. The FCA includes in its list of the possible actions it will take in response: "regulatory action by us (including, but not limited to, taking enforcement action against a firm or firms or varying permissions granted under FSMA); initiating a consumer redress scheme under s. 404 of FSMA;...". I can only assume the new rule will be quoted at firms found not to have reported and rectified recurring or systemic problems when they are sanctioned for breach DISP and PRIN 11. It does not seem to offer firms anything.
No doubt the significance of this Guidance is how the FOS will use its new power. As it has yet to clarify its plans for publishing Ombudsman decisions, we may not find out for a while. In the meantime, the noose tightens...