MPs and Peers have been warned that proposals to publish warning notices will put some small firms out of business.
In the draft Financial Services Bill, the government proposed a consultation on giving the Financial Conduct Authority (FCA), one of the successors to the Financial Services Authority (FSA), the power to publicise when a warning notice has been issued against a firm.
However, in written evidence to the Draft Financial Services Bill Joint Committee, the FSA has suggested this power should be given without consultation.
The issue was raised during an evidence session before the committee this morning, where MPs and Peers questioned a number of industry experts on the proposed new regulatory system.
Guy Matthews, chairman of the FSA's Smaller Businesses Practitioner Panel, said: "If an early warning notice occurs, that could be death of a company, and [it could] later come out that it actually wasn't appropriate. You will have firms going out of business based on that."
Complaints Commissioner Sir Anthony Holland suggested an independent third party should be created to assess any warning notices before they are published, although he accepted this would create a "cumbersome" system.
"You could have an individual or two who are experienced in this particular work who could actually look at the preliminary papers and say it can be published without prejudice to anybody or say it is a dubious way forward," explained.
Meanwhile, Russell Collins, chairman of the Financial Services Practitioner Panel, suggested the regulator should find a way to publish the warning notice without revealing the name of the firm involved.
"We would draw attention to the fact that quire a significant proportion of the financial notices are different from the original notices," he said.
"So in quite a number of cases firms would have suffered reputational damage and then found to have been acting correctly."
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