The House of Commons Treasury Select Committee has called for the Financial Conduct Authority (FCA) to work with the government to make it clear exactly what the regulator is responsible for, and what lies outside its remit.
In recent years, many ordinary investors and some smaller companies have suffered from the confusion caused by this issue, incurring sometimes significant losses when they incorrectly assumed the FCA would protect their interests.
The Committee is also concerned that some less scrupulous firms could exploit the confusion about whether a particular activity is regulated. When appearing before the Committee, FCA chairman Charles Randell said “bad people” could take advantage of any uncertainty in this area.
Many of the so-called ‘mortgage prisoners’ have been trapped in an unfavourable mortgage deal and have been unable to re-mortgage to a cheaper deal because their mortgages have been sold on to unregulated organisations. The FCA was then unable to force these unregulated firms to take any action to resolve the problem.
Two recent examples that illustrate the confusion relate to the global restructuring unit of a large banking group; and a firm that issued mini-bonds. In the first instance, no action was taken against the bank or any senior individuals, with the FCA saying that it could not act because commercial lending is unregulated, even though clearly the bank itself is subject to supervision by the FCA. In the second case, the firm was also regulated by the FCA, but mini-bonds themselves were unregulated, however if the firm gave advice to investors to take out mini-bonds then that activity may have been regulated after all.
Given these confusing circumstances, the Committee has called on firms to provide clear warnings when they promote or carry out unregulated activities, as sometimes customers are only realising that an activity or product is unregulated when widespread consumer harm has already occurred. Many customers of the mini-bond firm have suggested that the firm’s advertising prominently highlighted its regulated status.
Other recommendations of the Committee’s report include that the FCA be given the following powers:
• It should be allowed to approach the Treasury and formally recommend changes in the law to bring unregulated activities and products within its remit
• It should be allowed to highlight the potential risks to consumers of an unregulated activity
• It should be able to request data from non-regulated firms when it deems this to be necessary
A final recommendation in the report is that if the Government does not give the FCA the powers listed above then it must take responsibility for informing consumers of the issues and protecting the public from harm caused by unregulated activities.
However, the Committee is only an advisory body and has no direct power to change the law or the FCA regulations.
In June 2019 the FCA issued the first of what it says will be an annual perimeter report, explaining how the limits on the scope of regulation affect its supervision work.
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