The new financial services watchdog should have a clear role to promote consumer choice but no power to intervene under competition law, MPs said in a report today.
The new Financial Conduct Authority (FCA) will be launched next year to monitor how investment firms and products comply with conduct of business rules.
The government proposed a draft law last June to implement the reform which scraps the Financial Services Authority and divides its tasks between the new FCA and a new Prudential Regulation Authority (PRA) at the Bank of England.
The aim is to have a sharper focus on consumer protection and supervision of big banks following government bailouts of lenders in the financial crisis and several mis-selling scandals.
“While we recommend that the FCA be given a formal competition objective, requiring it to consider where financial services and markets are operating in a way which is consistent with competition, we were not convinced of the need to transfer the Office of Fair Trading’s powers with respect to competition law to the FCA,” parliament’s treasury committee said in a report.
Last November Martin Wheatley, chief executive designate of the FCA, told the committee he wanted the OFT’s competition powers in financial services so there is a “very clear demarcation line” between the two bodies.
His expected deputy, Margaret Cole, said that with these powers the FSA could have tackled mis-selling scandals such as payment protection insurance (PPI) earlier.
The report said it would be initially “less disruptive” if the FCA refers issues of competition law to the OFT which has the staff and experience to deal with them.
“We recommend that this issue be revisited once the FCA has bedded down, and with a track record both of the use of its powers and its ability to refer cases to the OFT on which to draw,” the report said.
It noted the FSA push to become more interventionist in monitoring the development of financial products before they hit the market, a new departure for UK supervisors which had hitherto focused on the firms and people who sell the products.
Financial Services Minister Mark Hoban has signalled his support for banning “toxic” products and issuing early warnings about a product or company - moves that much of the financial industry fiercely opposes.
MPs have criticised the FSA for being too slow to intervene but in the report they partly side with the financial industry and say such powers should be used only sparingly as they pose risks to competition and innovation.
“The case has not been made that the FCA will necessarily understand a new product better than a firm,” the report said. It backed early warnings on products but called for further consultation on warnings about specific companies.