THE CITY’S regulators will get much tougher next year, the incoming boss of the new Financial Conduct Authority warned yesterday, telling financial services firms he will take a “shoot first and ask questions later” approach to the role.
Banks could see products banned from sale even before regulators have decided whether they are safe or not, Martin Wheatley said, following up recent pledges to be a more “interventionist” leader.
But City lawyers warned the draconian new approach could damage honest banks’ reputations unfairly, undermine consumer confidence in ultimately good and safe products, and potentially lead to a damaging slew of law suits.
Wheatley said current rules meant regulators could spot products that are damaging, but only take them off the market after a year of analysis and consultation.
“The key difference between the future and now is we are being given the power to shoot first and ask questions later,” he told the Association of British Insurers.
“We will make temporary banning orders, where products are removed, and then we will do the consultation and cost benefit analysis.”
He said this was part of a broader change in the way the authorities operate, as “regulation has to strike the right balance between allowing the industry to thrive and ensuring firms deliver a fair deal to customers.”
But lawyers argued that this helps neither the industry nor customers.
“It is dangerous to take this approach, as it implies the FCA could act without justification,” said Arun Srivastava from Baker & McKenzie.
“A firm may come out unscathed by the regulator at the end of the process, but if this is done publicly and their name is dragged through the mud, faith in the institution may be undermined.”
Consultants in the sector are worried that the new approach may sound sensible from a public policy point of view to protect consumers, but will end up hurting far more bankers than just the few who create damaging products.
“We know 99 per cent-plus of people in financial services want to do the right thing – but once the power is there, others will worry it will be used on them,” said PwC’s David Kenmir.
“In the worst case the FCA will act disproportionately, firms will challenge them through the courts and it will damage consumer confidence even further.”
And CMS Cameron McKenna said the statements do not even match with previous regulatory guidance.
“This approach is a gross distortion of due process,” said Simon Morris. “The FCA has issued draft policy statements stating it will only act on good grounds. Wheatley should read his own policy documents before contradicting them.”