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Global Trustee and Fiduciary Services News and Views
| Issue 47 | 2017
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Looking forward — in the interests of consumers
Given banks’ role in the economy and in society,
people are debating, similarly to Lord Turner’s
reference to the debate on financial stability,
“whether and under what circumstances we can
be confident that the impact of [bank and near
bank] activities will be beneficial for the real
economy and thus for human welfare”.
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More
generally, financial services should operate in
the interests of consumers, whether directly or
through wider welfare benefits. But consumers
come in all shapes and sizes. And the FCA’s
objectives require it to consider as a consumer,
not only you and I, but also the biggest asset
managers and insurers, when provided with
services by banks in the capital markets.
For the FCA, therefore, consumers can include any
person who may be affected by the impacts that
financial services may have on the real economy.
But decades of focus on consumer protection by
SROs, the FSA and the FCA, leave many struggling
to know if the vast investment in consumer
protection was worth it.
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To an outsider, staggering
levels of fines, redresses and complaints appear
to continue unabated. In part, the past response
to this was to reorganise the regulators, both in
the UK and in the EU, and to write more rules.
But many of these approaches can’t be expected
to last into the 2020s. While there are always
legitimate cries from politicians and society to
stop the repetition of past scandals, lawyers and
conduct policy staff now know that writing rules
merely directed at some past event is a failed
paradigm and deeper, evidence-based approaches
need to be employed. In that regard, there are
already emerging two new (and linked) trends in
consumer protection, both being led or embraced
by the FCA, that can be expected to continue.
Regulatory Tool
The
first trend
relates to the tools used by
regulators. Simply put: rule-making does not
appear to have been effective in preventing
misselling, manipulation or market failures.
Yet after the fact, the rulebook provides a
plethora of penalties that can be imposed on
individuals and firms. Two new powers point
to new approaches by regulators.
Powers for product intervention will soon
be complemented by target market
requirements across the EU. And while the
UK has had product provider responsibilities
guidance for some years, the newer powers
can only lead to a greater fear of forecast
intervention.
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In return, that fear will likely
incentivise far clearer descriptions of what
products, including funds, are designed
to do. Arguments that manufacturers purely
produce components based on asset classes,
while historically legitimate, do sit uneasily
with outcome-focused, lifestyle and similarly
marketed funds.
But it is the second set of new powers that
will provide the greatest refocus of consumer
protection — the competition powers that the
FCA has been given put it in a very select
group among the world’s securities regulators,
allowing the FCA to analyse much deeper
structural issues and propose solutions that can
use all its powers, including better rule-making.
The final outcome of the asset management
market review is only a likely start in this area,
as the competition approach will likely inform,
and be used in, the 2017 review of the RDR.