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London - Britain’s new financial watchdog will ban products that are bad
for consumers for up to a year and intervene far sooner to stamp out
misselling, UK Financial Services Minister Mark Hoban said on Monday.
Britain must learn from scandals like payment protection insurance (PPI) misselling by top banks who are now paying out billions of pounds in compensation to customers, Hoban said.
“There will be a new power to ban products or restrict certain product features,” Hoban told a Which? consumer lobby conference.
This could have stopped the selling of single premium PPI products, Hoban said.
“We have faced strong opposition from industry to these proposals but we will not shift,” he said.
Britain is reforming supervision after the 2008 global financial crisis forced it to shore up banks - and it also wants to end two decades of financial misselling that has cost £15bn.
It will scrap the Financial Services Authority (FSA) by early 2013 and replace it with a regulator at the Bank of England for banks. A standalone Financial Conduct Authority (FCA) for market conduct and enforcement will have a core role to protect consumers and promote financial services competition.
The FSA published a paper on Monday outlining how the new conduct authority will operate.
Dilution warning
Groups of consumers will be able to provide evidence of misselling to the FCA, which must then report back publicly on what action it is taking within a given timeframe.
Consumers will be told earlier when regulators have concerns and the FCA will intervene earlier to temporarily ban “toxic” products that are a bad deal for consumers or misleading promotional material, Hoban said.
“At the moment people don’t know which adverts are being withdrawn. We will legislate to make that happen,” Hoban said.
The FCA will also have powers to refer competition concerns to the Office of Fair Trading which will have to respond.
“Under our new regime, we expect the FCA to take the initiative in tackling competition issues that cause consumer detriment,” Hoban said.
The FCA can also announce if it has begun a probe even before any conclusion has been reached - a step firms say may damage their business even if they are found in the clear.
Margaret Cole, interim managing director of the conduct business unit at the FSA, is worried, however, this power will be watered down in legislation now going through parliament.
“We want to be able to say what we are doing at an earlier stage. There is a danger that particular power, which is very controversial, will be circumscribed in some way,” said Cole, who has led the FSA’s stronger enforcement push.
Cole said the FCA will study business models carefully as they are a major driver of aggressive product sales.
Banking in Britain is dominated by HSBC, Barclays, Lloyds, RBS and Santander, which are all compensating consumers for PPI misselling.
Hoban said there was not enough competition in the banking sector and the government would focus not just on barriers to entry but also on giving consumers enough information to switch banks easily and with confidence.
British Bankers’ Association executive director of retail Eric Leenders said there was a high degree of public trust in banking and financial services, with surveys showing satisfaction levels of 75% or more.
The FSA has a formal objective of ensuring that new rules don’t harm Britain’s competitiveness as a financial centre, an aim critics say opened the door to light-touch regulation that failed to spot the crisis coming.
Cole said it was right that the government has dropped this objective from the new FCA’s remit so as to avoid conflicts with the watchdog’s more proactive, interventionist style.
“This does not mean the FCA will do London down as a financial market,” Cole said.
Britain must learn from scandals like payment protection insurance (PPI) misselling by top banks who are now paying out billions of pounds in compensation to customers, Hoban said.
“There will be a new power to ban products or restrict certain product features,” Hoban told a Which? consumer lobby conference.
This could have stopped the selling of single premium PPI products, Hoban said.
“We have faced strong opposition from industry to these proposals but we will not shift,” he said.
Britain is reforming supervision after the 2008 global financial crisis forced it to shore up banks - and it also wants to end two decades of financial misselling that has cost £15bn.
It will scrap the Financial Services Authority (FSA) by early 2013 and replace it with a regulator at the Bank of England for banks. A standalone Financial Conduct Authority (FCA) for market conduct and enforcement will have a core role to protect consumers and promote financial services competition.
The FSA published a paper on Monday outlining how the new conduct authority will operate.
Dilution warning
Groups of consumers will be able to provide evidence of misselling to the FCA, which must then report back publicly on what action it is taking within a given timeframe.
Consumers will be told earlier when regulators have concerns and the FCA will intervene earlier to temporarily ban “toxic” products that are a bad deal for consumers or misleading promotional material, Hoban said.
“At the moment people don’t know which adverts are being withdrawn. We will legislate to make that happen,” Hoban said.
The FCA will also have powers to refer competition concerns to the Office of Fair Trading which will have to respond.
“Under our new regime, we expect the FCA to take the initiative in tackling competition issues that cause consumer detriment,” Hoban said.
The FCA can also announce if it has begun a probe even before any conclusion has been reached - a step firms say may damage their business even if they are found in the clear.
Margaret Cole, interim managing director of the conduct business unit at the FSA, is worried, however, this power will be watered down in legislation now going through parliament.
“We want to be able to say what we are doing at an earlier stage. There is a danger that particular power, which is very controversial, will be circumscribed in some way,” said Cole, who has led the FSA’s stronger enforcement push.
Cole said the FCA will study business models carefully as they are a major driver of aggressive product sales.
Banking in Britain is dominated by HSBC, Barclays, Lloyds, RBS and Santander, which are all compensating consumers for PPI misselling.
Hoban said there was not enough competition in the banking sector and the government would focus not just on barriers to entry but also on giving consumers enough information to switch banks easily and with confidence.
British Bankers’ Association executive director of retail Eric Leenders said there was a high degree of public trust in banking and financial services, with surveys showing satisfaction levels of 75% or more.
The FSA has a formal objective of ensuring that new rules don’t harm Britain’s competitiveness as a financial centre, an aim critics say opened the door to light-touch regulation that failed to spot the crisis coming.
Cole said it was right that the government has dropped this objective from the new FCA’s remit so as to avoid conflicts with the watchdog’s more proactive, interventionist style.
“This does not mean the FCA will do London down as a financial market,” Cole said.
