The Financial Services Consumer Panel has called for the FSA to take over from the OFT the regulation of consumer credit business done by FSA-authorised firms. Zoe Hare asks whether this will cause confusion if non-FSA authorised firms remain under the OFT.
Topic: Financial services
Who: Financial Services Consumer Panel
When: 16 June 2009
Law stated as at: 22 June 2009
The Financial Services Consumer Panel ("FSCP") has urged the FSA and Government to change the rules in relation to consumer credit regulation.
The FSCP has issued a paper in response to the Turner Review stating that the regulation of consumer credit should be passed from the Office of Fair Trading ("OFT") to the Financial Services Authority ("FSA").
At the moment, there is a split in consumer regulation between the OFT and the FSA, although they do work together to ensure a consistent approach. In a joint statement published in May 2008 the FSA and OFT set out the division of responsibilities in relation to the Consumer Protection from Unfair Trading Regulations 2008.
The FSA's responsibilities were to consider the fairness of commercial practices with regards to financial services of FSA-authorised firms and appointed representatives undertaking regulated activities (under the FSMA 2000 (Regulated Activities) Order 2001). The OFT stated that it was responsible for unfair commercial practices in financial services where the activities were governed by the Consumer Credit Act 1974 or where the issue did not relate to an FSA authorised firm or appointed representative.
The FSCP's view is that since the majority of regulation in the financial services sector is carried out by the FSA, this role should be extended to encompass the regulation of consumer credit. Adam Philips, acting chairman of the FSCP, has said that the FSA "should regulate all aspects of business of the firms it authorises, including provision of consumer credit, which is presently regulated by the OFT".
The present split could cause confusion, the FSCP says, as it may be unclear to some which body regulates which areas. The key issues raised by the FSCP in its paper are:
- the FSA must deliver on its promise to increase its supervision of how firms conduct their business;
- the FSA must increase its scrutiny of firms' business models;
- the FSA should become a more transparent regulator;
- the FSA should regulate all aspects of business of the firms it authorises, including provision of consumer credit at present regulated by the OFT; and
- the FSA should take a tougher stance on enforcement.
Why this matters:
The consolidation of all financial services regulation would certainly create a smoother approach which would be more understandable to financial services institutions and consumers.
The FSCP is also hoping that this would result in financial services institutions lending more responsibly and help to reduce excessive debt caused by such lending. The FSCP believes that a dramatic change of the kind suggested would be beneficial to consumers.
However, there are obvious flaws with this approach. Consumer credit activities are not only carried on by FSA authorised firms. The FSCP proposals only seem to relate to FSA authorised firms. Therefore it appears that non-FSA authorised firms will remain under the present regime with the OFT. This may lead to inconsistent approaches between the OFT and the FSA. In particular, the FSA has notoriously stringent rules by which its authorised firms must abide.
It remains to be seen whether the views of the FSCP are taken into account and this area of regulation is radically changed.