The Treasury committee has urged the government to consider how the decision-making processes of the Financial Ombudsman Service would interact with the future regulatory framework for the Financial Conduct Authority.
In its report 'The Future Framework for Regulation of Financial Services', published today (July 6), the committee said it has received written submissions urging that the Fos should be included in its framework review.
The committee explained that given the aim of the Treasury’s consultation was to create a more coherent framework for how financial services are regulated, the Treasury should consider how the decision-making processes of the Fos would interact with the future regulatory framework for the FCA.
It said: “If parliament itself is to play a role in setting the regulatory principles of the FCA, it needs to be satisfied that the principles which it has set the FCA are not being undermined by decisions by the Financial Ombudsman Service.”
The Finance and Leasing Association (FLA) had told the committee how Fos decisions can set precedents that override Financial Conduct Authority principles.
It also warned its members were concerned that Fos decisions were “inconsistent” and did not seem to align with FCA rules.
The report stated: “The Financial Ombudsman Service is an important part of the FSMA framework in delivering consumer redress.
“Fos decisions sometimes set a precedent where the FCA has not previously considered an issue or where its principles-based regulation has not been prescriptive.
"As the Fos makes its decisions based on the individual merits of each case, this creates the risk that further ‘regulation’ is created without taking into account wider considerations.”
Trade body UK Finance also told the MPs that “where cases before the Fos have wider implications or would set precedents, there should be a more consultative and collaborative decision making process with effective rights of appeal.”
Decisions by the Fos form a critical part of the consumer element of the regulatory environment for financial services in the UK.
The committee also said it believes that effective scrutiny of regulatory proposals should remain in place.
Regulatory proposals are currently put out for consultation, enabling industry stakeholders, civil society groups as well as parliament to put forward views.
It stated: "We believe that effective scrutiny of regulatory proposals should be carried out through a targeted approach.
"Each new proposal made by the Financial Conduct Authority or by the Prudential Regulatory Authority under the future financial services regulatory framework would be put out for consultation.
"Industry stakeholders and civil society groups would have an opportunity to put forward views, as would parliament, both through the select committee system and through the work of individual members of either house.
"If any matter of public interest were to arise that we deemed sufficiently important to scrutinise in more detail, or indeed challenge, we would do so."
However, the report added the committee did not see a clear need for the creation of a new committee or independent body to scrutinise financial regulations.