11Feb

FCA issues feedback on retrospective regulation consultation

In January 2015, the Financial Conduct Authority (FCA) issued a feedback statement in which it asserted that, contrary to some people’s opinions, it did not believe it had applied any rules retrospectively.

As the regulator, the FCA is entitled to change its mind, and to issue new rules and guidance. However, it is clearly not fair to then hold firms accountable for their actions before these changes were made, if the firms were indeed acting in accordance with the FCA’s rules, principles and guidance available at the time.

Back in August 2014, the FCA asked firms to provide examples of when they believed rules may have been applied retrospectively, by either the FCA or its predecessor the Financial Services Authority (FSA). 36 responses were received, but the FCA is apparently not convinced by any of the examples given in these replies.

Some firms have said in the past that they believe the regulator ‘moved the goalposts’ in areas such as:

  • Whether the design of single premium payment protection insurance policies breached the Treating Customers Fairly principle
  • The FSA’s statement in July 2011 that it believed traded life policies were ‘toxic’, after the products had already been on the market for some time
  • Issues regarding mis-selling scandals such as pensions, endowments and interest rate hedging products

Some mortgage lenders have cited a fear of subsequent retrospective regulation as a reason for not allowing customers trapped on poor mortgage deals (the so-called ‘mortgage prisoners’) to re-mortgage to a better deal without having to go through the usual stringent affordability assessment.

The FCA recognises however that most of its supervision activities concern events that have already occurred, and suggests that this could give rise to perceptions of retrospective regulation. This may occur for example when the regulator uncovers concerns about the advice given by a firm over a period of time and commissions a historical business review. The FCA is striving to become a more forward-looking regulator and to intervene at an early stage where it suspects that issues may arise.

Some advisers and industry commentators however believe that the real problem with retrospective regulation lies with the Financial Ombudsman Service (FOS). Officially, the FOS is not a regulator, and its role is confined to adjudicating on complaints made about financial firms.  However, the FOS uses a very generic test of whether it believes the firm’s actions were ‘fair and reasonable’, and clearly this will always be a subjective judgement.

Simon Webster, managing director of Kent-based advisory firm Facts and Figures Financial Planning, said:

“It may not be the case that the FCA does retrospective regulation but FOS does and it remains an issue for all financial advisers.”

Simon Mansell of Worcester-based Temple Bar Independent Financial Advice, suggested the FCA was operating “above the law.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.