A new joint committee of six MPs and six peers is to enquire about consumer responsibility under the new 'twin peaks' regulatory system as it begins its pre-legislative scrutiny of the draft Financial Services Bill (FSB).
The committee is asking "interested" organisations and individuals whether the new system strikes the right balance of responsibility between consumers and firms.
It will also enquire about whether the Financial Conduct Authority's (FCA's) new powers in the area of consumer protection are appropriate.
Under current plans, the FCA, one of the Financial Service Authority's (FSA's) replacement entities, will have the power to block the sale of otherwise suitable financial products where it finds consumers are being hit by poor sales and distribution processes.
The MPs and peers will also investigate whether FSA employees who will move to the Prudential Regulatory Authority (PRA) and FCA have the "appropriate skill and expertise" to cope with the new proactive regulatory culture.
Despite Treasury denial that the new "twin peaks" regulatory structure clashes with Europe, the committee will ask whether the separation of prudential and conduct regulation is the right approach.
The questions are among 22 (see below) set out by the committee. It is inviting responses by Friday 2 September.
The committee's three key questions:
The committee is interested in whether the draft legislation will or could better:
- prevent another financial crisis,
- handle a financial crisis,
- deal with bank failure and protect the public purse.
The following questions are also of interest:
- 1. Is the separation of prudential and conduct regulation into a "twin peaks" system the right approach?
- 2. What lessons can be learnt from the approach of other countries to regulation of the financial sector?
- 3. Is it appropriate to make such major changes to the regulatory system by way of amending legislation, rather than starting afresh?
- 4. Are the accountability and governance arrangements for the Bank of England, FPC, PRA and FCA satisfactory?
- 5. Are the FPC's objectives the right ones? Is the concept of financial stability adequately understood for the FPC to be able to perform against its objectives?
- 6. Should the FPC be limited in the actions it can take which might affect the growth of the financial sector?
- 7. How will the interaction between macro-prudential and monetary policies be handled by the FPC and the MPC?
- 8. Has the right balance been struck between the powers of the FPC and the powers of the Treasury?
- 9. Can Parliament take an informed decision about the proposals for the FPC without details of the macro-prudential tools at its disposal?
- 10. Does the draft Bill adequately deal with the risks posed by the shadow banking system?
- 11. Are the PRA's objectives clear and appropriate?
- 12. Are there any risks in the Government's proposed 'judgement-based' regulation?
- 13. Is the Government's proposed approach to 'orderly' firm failure satisfactory?
- 14. Given that the PRA and the FCA will inherit FSA staff does the draft Bill do enough to ensure a new regulatory culture and a more proactive approach to regulation? Will these two new bodies have staff with the appropriate skill and expertise?
- 15. Are the FCA's primary objectives appropriate? Is significant emphasis given to the promotion of competition?
- 16. Are the responsibilities of the FCA towards the regulation of markets appropriate?
- 17. Does the draft Bill strike the right balance between the responsibilities of consumers and firms? Are the FCA's new powers in the area of consumer protection appropriate?
- 18. Are the prudential regulatory responsibilities of the FCA towards FCA-only regulated firms given sufficient emphasis and detail?
- 19. Will the new regulatory arrangements reduce the risk and cost of dealing with miss-selling of financial products?
- 20. Are the proposals for co-ordination between the PRA and FCA clear and adequate? What would be the advantages and disadvantages of having a Single Point of Contact and/or a joint rule book for dual-regulated firms?
- 21. How do the proposals in the draft Bill fit within the new European regulatory regime? What freedoms and constraints will the UK have to operate within that regime?
- 22. Does the draft Bill contain any proposals or omissions, not covered by the questions above, which cause concern?
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