In a report published today (August 2) the Treasury committee warned the current "informal" system used by the financial regulator to request changes to its regulatory perimeter from HM Treasury created a "grey area" between regulated and un-regulated activities which risked being exploited.
The FCA's regulatory perimeter determines what the watchdog can and cannot regulate and is established by the Treasury, but the FCA has no formal power to request any changes to the perimeter with the current relationship between the two parties branded "informal" and "insufficient".
Charles Randell, chairman of the FCA, told the committee he is "personally very unhappy […] with the complexity of the perimeter of regulation" and warned "bad people" may exploit the grey area between where a consumer is protected by regulation and is not.
The committee recommended "clear and explicit" warnings should be provided where regulated financial institutions undertake unregulated activity and warned current challenges such as the regulation of mini-bonds, including the London Capital & Finance scandal, and mortgage prisoners sat in this so-called grey area.
The committee said: "The FCA must not be, or feel, constrained from providing warnings on financial products that sit outside the perimeter but may cause consumer detriment, such as crypto-assets.
"The FCA should be given the remit to highlight the potential risks to consumers of an unregulated activity."
If the FCA is given a formal power to recommend changes in its regulatory perimeter to the Treasury, the committee said all recommendations should be publicly disclosed in the interest of greater transparency.
It added: "The FCA’s current inability to gather information on the risks to consumers both at and beyond the perimeter means that it will always be reactive.
"The Treasury should undertake research on enabling the FCA to determine whether it should gather data from non-regulated entities."
The proposals were agreed under Nicky Morgan MP as chairwoman of the Treasury committee, but she has since left the post as part of the cabinet reshuffle under new prime minister Boris Johnson.
The committee warned if the Treasury refused to implement the changes recommended in the report it must "acknowledge that it has itself fully retained these responsibilities" and report annually on the work it intends to do to monitor the regulatory perimeter instead.
Svenja Keller, head of wealth planning at Killik & Co, said: "I would very much welcome the widening of the scope for the FCA to warn about any financial product that might cause consumer harm, regardless of whether the product itself is regulated or not.
"Two of the three FCA objectives are consumer protection and protecting and enhancing the integrity of the financial services system in the UK – being able to comment on any product being sold in this market falls within this remit.
"A lot has been done to improve the integrity of our industry but the amount of scams and scandals, such as London Capital & Finance and British Steel pension [transfer advice], shows the FCA needs further powers.
"It is right that the select committee has called for this today. Bad actors impact the whole industry as consumers do not and cannot know who to trust."
rachel.addison@ft.com
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