By Brooke Masters and Chief Regulation Correspondent
Cases of widespread mis-selling of financial products are to be handled as a group to limit customer harm and speed compensation claims, under draft regulation reforms unveiled by the government.
The plans to fast track mass complaints are a direct response to the ?6bn payment protection insurance scandal and large regulatory fines against UK banks for poor complaints-handling and investment advice.
“Rather than waiting until it is too late, we will give the regulator power to intervene [to speed up the process],” said Mark Hoban, financial secretary to the Treasury.
The draft financial regulation bill provides the first “detailed blueprint” of the plan to split the Financial Services Authority into two new regulators. The Prudential Regulatory Authority, an arm of the Bank of England, will focus on the safety and soundness of banks and insurers. The Financial Conduct Authority will supervise markets and how all companies treat their customers and counterparties.
The bill will also create the new Financial Policy Committee, another part of the Bank of England, charged with spotting and minimising threats to financial stability, such as credit bubbles. An interim version of the FPC met behind closed doors on Thursday.
The British Banker’s Association called the bill and accompanying white paper “an enormously significant milestone”.
The government’s proposals are the latest incarnation of a plan first trailed by the Tories before the 2010 election, and the broad outlines are unchanged.
A planned pre-legislative consultation with both houses of parliament is likely to last several months, and formal legislation will take at least another year. The new structure will probably come into effect in early 2013.
In the meantime, the FSA is in informally dividing itself into a conduct unit that will become the FCA and a prudential unit that will become the PRA. The supervisory teams that oversee specific institutions will split early next year.
Ed Balls, shadow chancellor, said he feared the new regulatory system could be “more complex” and lead to less accountability.
“I’m concerned this looks like change in positions simply for the sake of change,” said Mr Balls, who has admitted he failed to regulate the City effectively when he was at the Treasury. “We need to look at this harder.”
Some of the details in the draft bill address concerns raised by the industry and consumer groups.
Unlike the current watchdog, the FCA will have an avenue to explore concerns over lack of competition in retail and investment banking. It can require the Office of Fair Trading to “consider whether structural barriers or other features of the market are creating competitive inefficiencies in specific markets”.
The draft bill includes a specific nod to insurers, which have received far less attention in the discussion of financial regulation. The PRA will have a specific objective focused on making sure policyholders “secure an appropriate degree of protection”.
The draft legislation comes in the form of amendments to the existing financial services and markets act, which established the FSA. While designed to speed up the legislative process, the strategy has drawn criticism because it makes it harder to determine what the bill actually does.
?The Financial Times Limited 2011