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.
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.
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
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“At the moment people don’t know which adverts are being withdrawn.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.
our new regime, we expect the FCA to take the initiative in tackling
competition issues that cause consumer detriment,” Hoban said.
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
“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.
in Britain is dominated by HSBC, Barclays, Lloyds, RBS and Santander,
which are all compensating consumers for PPI misselling.
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.
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.
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
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.