HM Treasury’s consultation on Financial Services Future Regulatory Framework Review: Proposals for Reform - Which? response

Which? welcomes the opportunity to respond to HM Treasury’s consultation on Financial Services Future Regulatory Framework Review: Proposals for Reform. 

It is right to periodically review the UK’s regulatory framework to consider whether it remains appropriate in its current form and delivers a coherent, agile, and internationally-respected approach to financial services regulation that is right for the UK and consumers. The main points from our response are:

• We urge HM Treasury to reconsider its proposal to add new growth and international competitiveness secondary objectives for the PRA and FCA. Our primary concern is that giving the regulators additional, potentially conflicting, objectives will have a negative impact on the protection and advancement of consumer interests. In particular, we consider this proposal is likely to complicate the FCA’s decision-making process, dilute existing consumer protections and lead to a reduced willingness to advance new consumer protection measures. In addition, we do not think the positive case for this change has been made, or even that it is a role that regulators should perform. Past experience provides a stark warning about the negative consequences which can arise when regulators are tasked with promoting competitiveness, while others (e.g. HM Treasury itself and the City of London Lord Mayor, as well as the multitude of trade associations) are already tasked with this responsibility. In addition, we note that HMT can already make recommendations to the FCA about areas it should have regard to. Given these reasons, we consider that proceeding with this proposal has the potential to significantly undermine the FCA’s ability to protect consumers and so we recommend that HM Treasury does not take it forward.
• HM Treasury and regulators should not rely solely on formal consultations to gain input from consumer voices on regulatory proposals. It is vital that there are opportunities for consumers and their representatives to engage with and scrutinise the development of regulatory proposals to help balance the input and lobbying from the well-resourced financial services industry. There is a strong case for Government and regulators to think more creatively about how best to gain views from this constituency, and not to rely solely on the views expressed in response to formal consultations.
• We are particularly concerned that the consultation does not pay specific attention to the issue of direct redress for consumers. We do not believe that relying solely on FCA and other regulators to enforce rules gives sufficient protection for consumers, especially given the growing prevalence of fraud and scams. We note that it is a recommended step in National Audit Office guidance on good practice in regulation for policymakers to consider appropriate mechanisms for the public to seek redress in relation both to the actions of regulators and regulated entities . For example, the Government should consider strengthening the redress scheme provisions in section 404 Financial Services and Markets Act (FSMA) 2000, enacting an opt-out representative action procedure for consumers with financial services claims analogous to that in competition law, or further extend private rights of action and civil liability for breaches of FCA or other regulator rules.
• We are mindful that there are many aspects of EU retained law on financial services matters of key importance to consumers, and where the benefits of having core rights and responsibilities set out in primary or secondary legislation clearly outweigh any perceived flexibilities of a ‘regulator rules based’ approach. The areas of law covered include payment protections, mortgage loans, consumer credit, pensions and investment. In many cases, the existence of civil liability derived from rights in these areas will allow individuals to bring legal claims or take a complaint to the Financial Ombudsman Service if necessary. Moreover, there has already been a shift towards allowing further discretion of the FCA in some areas, such as the recent changes to the Packaged Retail and Insurance based Investment Products (PRIIPs) regulations concerning product information to be provided to consumers. This is a worrying trend without clear legislative safeguards and criteria being preserved.