Regulation: Out with the old, in with the new

18th February 2011

That is the question investors and borrowers should ask themselves as the Treasury sets out the remit of the new consumer watchdog due to come into existence by the end of next year. The big news is that it could ban financial products that it deems to be too risky and tell you about firms it is worried about so you don't do business with them – but it has other powers too.

The FCA's powers are related here in Treasury-speak on Citywire.

But the website also helpfully lists what these new powers mean in practice –  

* 12-month product bans

* Cancelling contracts that breach its product rules

*Publishing more information on firms under investigation

* Banning misleading financial adverts

One of the big consumer advocates and magazine publisher Which? is certainly happy – in fact it declares itself delighted with the new reforms.

But some are more cynical. Lawyer Alasdair Sampson on trade website Money Marketing writes about the problems with product regulation here.

Yet journalists who stick up for consumers seem happy with the FCA if not necessarily the full system overall.

Daily Mail City Editor Alex Brummer , having in the past lambasted the old tri-partite system, is fearful of a new alphabet soup of regulators. (see end of article for those regulators in detail).

But he sees a lot of merit in the FCA's new powers.

He writes: "What looks more promising is the changed rulebook for the FCA, successor to the FSA. It would have new powers to ban misleading products, such as ‘cautious investment funds' which are anything but from coming to market.

As importantly, instead of keeping its enforcement actions secret, thereby exposing consumers to buy into products or place money in funds which may be dodgy, it will be able to announce probes at the moment that suspicion is aroused.

"Such action might have prevented people being sucked into Icelandic bank deposit accounts just as the balloon was about to blow up or taking duff advice from financial planners at Barclays."

The FCA will oversee two other bodies, the Financial Ombudsman Service, which deals with individual complaints, and the Financial Services Compensation Scheme which may pay you compensation if a financial firm goes bust.

Another body, the Prudential Regulatory Authority or PRA will take over other Financial Services Authority powers.

These will involve it working as part of the Bank of England to ensure that banks and other big firms in the UK are financially sound i.e. they have enough money to back up their business activities, while the Financial Policy Committee at the Bank of England, will guard against risk to the financial system overall and bring in outside expertise to advise it on this, in a system that echoe the Monetary Policy Committee on interest rates.

SEE ALSO: Regulation: new watchdogs promise greater consumer protection

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