Memorandum by the Consumers' Association
Consumers' Association (CA) welcomes the opportunity
to respond to the Financial Services Authority (FSA) consultation
on enforcement. The ability and willingness of the financial services
regulators to take pro-active and effective disciplinary measures
has been an area that we have taken interest in from the perspective
of consumer confidence in the market and consumer redress. In
our response to the Treasury consultation on the draft Financial
Services and Markets Bill we stated our view that:
"The regulation of authorised persons must
make it clear in practice as well as theory that individuals are
responsible for the actions of their organisations. Disciplinary
measures of public censure and fining should be used when appropriate."
As a general point CA favours wide ranging disciplinary
and enforcement powers for the regulator. In our view it has been
the lack of powers, and more specifically the lack of willingness
of regulators to use these powers, that has been a detriment to
Therefore we have set out below the areas in
which we wish to comment.
We regard it as essential that a
strong regulator with wide ranging disciplinary and enforcement
powers protects consumers.
The FSA must adopt a pro-active stance
in identifying problems before they become serious or widespread
The powers of the FSA must be practical
The FSA powers must be simple and
streamlined and not overly legalistic or complex.
Investigations should be targeted.
Individual accountability is essential
and the FSA must be able to take action against individuals when
this is warranted.
Accountability is important but so
is the ability for the FSA to use its powers quickly, efficiently
Part 2 Intervention
In considering the FSA powers of intervention
in the business and affairs of firms, we would first state that
we expect the bedrock of this interaction to be an environment
of openness and co-operation. Not only should this be expected
from regulated firms, as outlined in the Principles of Business,
but it is also the most cost effective method of dealing with
issues on a day-to-day basis.
In terms of regulatory intervention, we naturally
regard it as essential that the FSA has wide powers to deal with
firms, against the background of its statutory objectives. But
more than this we regard it as essential the FSA adopts a pro-active
stance in trying to identify potential problems either before
they manifest themselves, or before they manifest themselves on
a large scale. CA has been critical of the financial regulators
in the past for their inability to position themselves ahead of
problems, and has often been in the unfortunate position of having
to react to market failures.
So in terms of the FSA's overall approach to
intervention we would strongly welcome a high profile pro-active
role. In this context we were very encouraged by the recent statement
by Howard Davies warning firms about misleading consumers about
Individual Savings Accounts (ISAs).
We are pleased to see a clear statement from
the FSA that it must co-operate and collaborate with overseas
regulators. This is indeed essential for the effective regulation
of the international market in financial services, particularly
in view of the many challenges that lie ahead in terms of E-Commerce,
distance selling and the Euro. It will be imperative to have robust
mechanisms in place to cope with cross border jurisdiction and
the enforcement of regulations.
While we accept that many instances of intervention
can and will be conducted on a regulator to firm basis only, we
regard it as essential that the FSA are quick to make details
of intervention public where this will benefit the market in terms
of confidence and warning consumers.
Part 3 Investigations
Investigations should be conducted with regard
to the statutory objectives of the FSA, but they should also be
targeted so that the weight of enforcement falls where it is most
appropriate. By being pro-active in gathering information, the
regulator should have a clear understanding as to which sectors
and firms may require the most monitoring.
Part 4 Securing Redress for Consumers
We strongly support FSA powers to ensure that
losses suffered by consumers are made good when they occur as
a result of a regulatory breach. In addition to this consumers
will still have the right to complain to the firm, and ultimately
to take their complaint up with the Financial Services Ombudsman.
In most cases we expect that the FSA will be
able to agree with the firm as to the extent of compensation,
the form it will take and the timescale for payment. If this is
not possible, we strongly support the ability of the FSA to utilise
Part 5 Discipline of Authorised Firms and Approved
With regard to disciplinary powers we welcome
the ability for the FSA to issue public statements about firms
and individuals and to impose fines on firms and individuals.
We have had concerns in the past about fines
levied only against firms, in that they have seldom been large
enough to damage the institution, they are ultimately paid for
by consumers, and they place accountability on the firm rather
than on the individual. Nevertheless the sanction of imposing
fines against firms and against individuals is an important one,
and we do not subscribe to the view that the ability of the FSA
to impose fines pushes the regime onto a criminal basis.
We have strongly supported moves towards individual
accountability in the industry. There must be effective sanctions
to make employees, especially company directors and senior management,
responsible for the actions of the companies they are managing.
For example, throughout the protracted pension mis-selling review
not a single senior manager, board member, director or compliance
officer has been censured or fined, even when the regulators have
identified internal management failures as a cause of, or contributing
factor to, the mis-selling.
As a final sanction, we are fully supportive
of powers to withdraw authorisation, and ensure that individuals
who are not fit and proper are removed from the industry.
Part 6 Market Misconduct
Part 7 The FSA's Decision-making Process
The issue of the wide-ranging powers that the
FSA will be able to utilise has received much attention and lobbying
from certain sections of the industry. As stated earlier CA's
general concern has been more about the lack of powers of financial
regulators or the lack of use, rather than concerns about over
use. However, it is of course correct that the FSA is accountable
for its actions.
The existence of an independent Appeal Tribunal
is an important safeguard as is the establishment of an FSA Enforcement
We are clear that within a structure that is
accountable and contains procedural safeguards, the FSA must be
able to operate a process that is as simple as possible, and that
avoids an overly complex legislative approach.
In terms of the actions of the Enforcement Committee,
the procedure must be flexible enough to deal with each case before
the Committee. However as a general principle we consider it appropriate
for the Committee to issue a Warning Notice at outset and then
allow the firm or individual to make representations to the FSA.
We believe that this mirrors the existing regime for dealing with
In conclusion it is vital that the enforcement
regime adopts a pro-active consumer focused approach that delivers
against the statutory objectives of protecting consumers, maintaining
confidence in the financial system and reducing financial crime.
The financial services industry has inflicted many blows to public
confidence in recent years, and we regard it as essential that
the FSA uses its enforcement powers to ensure a fair and competitive
market where consumers can buy with confidence.