Committee announces inquiry into accountability of the FCA

Many argue that much of the FSA’s conduct of business regulation has been both ineffective and costly. It is vital to take the opportunity, with the creation of this new body, to do better. In an earlier report, the Committee has already made it clear that competition and choice should play a more central role that is currently envisaged in the Government draft legislation. One of the objectives of this inquiry is to scrutinise the remit and powers of the FCA to facilitate this.

This is a golden opportunity to establish how, in future, the FCA can best be held to account by the consumers who pay for them, by industry practitioners and by Parliament.

The Committee is are looking forward to hearing ideas on how this can be achieved.”

Background

The Government propose that, by the end of 2012, the Financial Conduct Authority (FCA) will take over responsibility for regulating how firms conduct their business from the Financial Services Authority (FSA). This provides an opportunity to bring much needed improvement to conduct of business regulation.

On 24 March 2011, the Treasury Committee published a report on Competition and Choice. In this report it was recommended that “the FCA should have competition as a primary objective. This will benefit consumers directly and indirectly. Not only will there be a greater choice available for consumers, but the transparency which effective competition brings should reduce the need for heavy handed regulation”.

The Committee has also examined the FSA’s Retail Distribution Review which represents a major reform of the regulation of retail investment advice. In the report, which was published 6 July 2011, the Committee concluded that “The creation of the FCA provides an opportunity to examine the accountability mechanisms that will apply under the new system of financial regulation. We will therefore instigate an inquiry into this including the mechanisms proposed by the government”.

The FCA will shortly take over day-to-day responsibility for conduct of business regulation from the Financial Services Authority (FSA). The Bank of England will have responsibility for macro-prudential regulation through the Financial Policy Committee (FPC) and micro-prudential responsibility through its subsidiary, the Prudential Regulation Authority (PRA). The PRA will assume responsibility for the regulation of prudentially significant firms (for example deposit taking banks and insurance firms).

The Committee has now taken evidence for its inquiry into the Accountability of the Bank of England. This inquiry considered whether, given the Bank’s hugely expanded powers, the lines of accountability are sufficient and, if not, whether additional accountability mechanisms need to be introduced. This report will be published in the Autumn.

In June 2011, the FSA published a “FCA approach document” to inform public debate and facilitate stakeholder engagement. The document invites comments on the proposals until 1 September 2011.