The House of Commons Treasury Committee has urged HM Treasury to extend the remit and powers of the Financial Conduct Authority (FCA) in efforts to avoid potential harm in the future caused by unregulated SME lending, "mortgage prisoners", mini bond firms like London Capital and Finance, as well as crypto scams.
It follows frustration voiced by FCA chief executive Andrew Bailey and FCA chair Charles Randell about the extent of the so-called "regulatory perimeter", which determines what the regulator can and cannot regulate.
The FCA's recently published report on the perimeter saw Bailey note that the question of its responsibilities had been particularly important in 2019 as "firms operating on the edges of the perimeter have recently caused serious harm to consumers". Meanwhile Randell recently told the Treasury Committee that he is "personally very unhappy… with the complexity of the perimeter of regulation".
In a report published on Friday (2 August), following an inquiry into the work of the FCA, the Committee told the Treasury that there are "numerous topics that exist in this grey area" of what the regulator does and does not regulate. It said this includes SME lending, like that of the RBS Global Restructuring Group scandal.
As a result, the Committee is recommending that where regulated financial institutions undertake unregulated activity, "the regulatory system should ensure that clear and explicit warnings are provided at that point, with the potential consequences of the lack of regulatory cover clearly explained, with sanctions for firms that fail to do so".
The Committee said: "The FCA must not in future be constrained, or feel constrained, from providing warnings on financial products that may cause consumer detriment.
"The FCA should be given the remit to highlight the risks faced by financial services consumers including where an activity is beyond the perimeter of regulation."
In addition, the report called for the FCA to be formally empowered with the ability to recommend to the Treasury "changes to the perimeter of regulation where that would enhance its ability to meet its objectives, in particular to prevent consumer harm".
At present the FCA can only raise issues of this kind through an informal process. The Committee said that under a formal process of requesting changes to the perimeter, the FCA would set out any costs to firms and consumers and the Treasury would publicly disclose its response to such requests.
The report also recommended that the FCA be granted the power to order additional information from unregulated entities "to help meet its objectives", while the regulator itself should be able to "determine whether it should gather data from non-regulated entities".
The Committee said that if the Treasury is "not content to provide the changes in remit and further powers to the FCA" that its report recommended it should "acknowledge that it has itself fully retained these responsibilities".
It added: "If that is the decision of the Treasury, this Committee recommends that the Treasury reports annually on the work it will do to monitor the perimeter of regulation, the risks that may have arisen beyond the perimeter, and how it has acted to detect and prevent consumer detriment."
Staff are your responsibility
More than 4,500 retail investors affected
Paid out £54m in related compensation
Changes to take place by next year