The consistent theme of the consultation is the idea that in meeting its objectives the FCA has several choices. The consultation attempts to define those choices and sets out the principles the FCA will use in deciding how to exercise its discretion.
For those familiar with financial services regulation, there is very little in the document that is new or revolutionary. Most of the consultation describes what the FCA is already doing and no one will be surprised to learn that it weighs up many factors in deciding what action to take.
Nevertheless, the attempt by the FCA to frame its mission, clarify its thinking and provide some direction to its activities is welcome.
Public policy v regulation – the role of cross-subsidy
Buried in the 47-page document are also some clues as to areas where the FCA may subtly change direction or emphasis in the months ahead. However, these are more evolutionary than revolutionary. Some are of particular interest to those operating in the advisory sector.
The consultation addresses the line between regulation and broader public policy.
Key points
- On 26 October, the Financial Conduct Authority published a consultation on its "Mission".
- The consultation addresses the line between regulation and broader public policy.
- The FCA regards it as important that it provides appropriate information about its regulatory decisions.
The FCA points out the government has decided some services are so important that all consumers should have access to them – these include heating and telecoms, and in financial services flood insurance and basic bank accounts, and that certain groups of customers should cross-subsidise others to ensure everyone has access to these services.
The FCA points out that it does not set public policy and it is for the government to decide whether to extend this cross-subsidy to other financial services.
In other parts of the consultation, the FCA expresses concern about other areas of cross-subsidy that firms choose to employ; for example, established customers subsidising introductory offers to new customers.
Balancing the responsibilities of firms and consumers
The antipathy of the FCA to cross-subsidy has some importance for advisers in the context of the so-called advice gap (that is, the difficulty with which investors with moderate sums to invest can obtain affordable advice), which some attribute to the ban on commission-based advice following the retail distribution review.
The consultation is confirmation (if it was needed) that the FCA is unlikely to address the advice gap by relaxing its ban on commission and so permit cross-subsidy between consumers.
