The Financial Conduct Authority has published a summary of feedback on the subject of retrospective regulation, stating that while it did not find any examples of applying its rules retrospectively, the regulator has changed its mind in some instances.
In a regulation round-up last August, the FCA asked firms and their representatives to send any examples of where they believed it or its predecessor the Financial Services Authority had applied rules retrospectively.
Of the 36 responses - 16 individuals, eight intermediaries, four product providers, seven trade association and one ‘other’ - none contained examples of the rules being applied retrospectively, but a number of other issues emerged.
“The most important of which was a feeling that we had changed our mind in some instances, having turned our attention to an issue that we had not previously been focused on,” read the report.
“Our hope is that our more forward-looking approach, including an increased commitment to early intervention, as well as clearer communications, will help to avoid the perception of retrospection in the future.”
The regulator’s conclusion was that the issue is one of perception – principally created by the fact that it continues to work on several legacy issues – although it did find examples where firms felt the FSA/FCA had intervened late as a result of risk crystallising and there were general concerns about decisions made by the financial ombudsman.
Genuine issues were raised during the call for input, related to the way it regulates firms, which suggest there is scope to improve practices and include the following:
• the desirability of improving firm communication and clarifying the way guidance is given;
• the need to recognise that fast-paced technological change may mean that rules become inappropriate and that there may be a need to consider using waivers in these circumstances; and
• the need to intervene at an earlier stage to avoid the development of problems over a long period, particularly where firms draw a conclusion that the regulator does not perceive there to be a problem.
The FCA stated that it has already begun work on all these issues, but reiterated the need to be forward looking, in order to reduce the perception of retrospection in the market.
During the feedback period for this work, the issue most frequently mentioned was the treatment of traded life policy investments, in particular the FSA branding them as ‘toxic’ and the consequent fall in their value.
The FCA said it believed that the FSA’s intervention in this market was justified, adding that a stronger, clearer warning to the industry and retail consumers was warranted.
The second most-frequently mentioned issue was the Financial Ombudsman Service and its decisions, with one respondent stating: “The main threat of retrospection emerges from the interplay of regulatory activity in which rules laid by one body can be reinterpreted by another, notwithstanding the change in approach that it might contain.”
The FCA said that while there were no significant examples of retrospection, there were general statements of concern with the perceived approach of the ombudsman.