Treasury: FCA is opportunity to improve on FSA
A spokesperson for the Treasury select committee who are overseeing the break up of the Financial Services Authority (FSA) has criticised the bureaucracy of the organisation and welcomed the opportunity to create something better.
The FSA was created in 1997 to help regulate the financial services sector and oversaw a number of scandals, including the recent mis-selling of payment protection insurance and endowment mortgages.
It has been criticised for failing to protect consumers and having a ‘box ticking culture.’ A recent investigation has also revealed the failure to use ‘mystery shoppers’ for over a year and a half, after agreeing to step up their mystery shopping and on-site visits in 2010.
It is currently being broken up into two separate organisations, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
The PRA is to be set up inside the Bank of England and will be responsible for regulating the major banks, whilst the FCA will be responsible for consumer regulation as well as financial products.
Andrew Tyrie, from the Treasury select committee, has warned that the FCA has the potential to be the ‘poor relation’ of the two new organisations. He is calling for the government to legislate and give them the primary objective to ‘promote competition to the benefit of customers.’
Many MPs also want the FCA to create a plan to attract the best staff and also review the merits and costs of pre-approving financial products, as the old system has tended to focus more on how financial products were sold.
Mr Tyrie also argued that in the creation of the FCA, they had an opportunity to improve on the FSAs approach to regulation.
The FSA had previously been criticised as being aloof and unapproachable, and the Treasury select committee have urged the FCA to address this issue. They are calling for the FCA to act and liaise with the industry it is responsible for regulating.
The Consumer Focus watchdog welcomed the committees report and indicated that recent years had seen an improvement in the work done by the FSA. They have called for the FCA to take this work forward and become an institution that consumers can rely on.
A spokesperson from Consumer Focus said: “We agree that the Financial Services Bill needs to have stronger provisions to protect consumers. The right balance between the demands of industry and the needs of consumers has not yet been struck. This is a once in a generation opportunity to reform our financial regulation and it is vital we get it right and learn from mistakes of the past such as the mortgage endowment and PPI scandals.”
In the meantime, the Financial Ombudsman Service (FOS) are expecting a record number of PPI cases in the coming year.
Over £1 billion was paid out in the first 10 months of 2011, but the FOS have indicated their disappointment that many consumers are still waiting for businesses to tackle their complaints.